Test 11

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TEST – 11 Solutions

Prelims Test Series 2016 – Test 11

Solutions
1. How can two nations with the same money supply have different
Gross Domestic Product (GDP)?
1. Circulation of the same money supply happens differently in
both economies.
2. Labour productivity can be different in the two economies.
Which of the above is/are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Justification: Statement 1: Suppose money is ideally sitting in an

economy and does not changes hands. It does not generate any output
then! A nation that circulates money more, i.e. where money changes
more hands will have greater economic activity, and where it is lesser
will have lesser economic activity and lesser GDP. So, 1 is correct.
The concept is called velocity of money.
Statement 2: Even if circulation of money becomes the same, how much

the same unity of labour produces in the two economies can be different.
A low skilled economy will not generate higher outputs, whereas a high
skill base will generate more output with the same money wages. So, 2 is
also correct.
Q Source: Improvisation: Page 10: Chapter 2: 12th Macroeconomics

NCERT
2. As per Classical Economic thought, if the buyers and sellers in each

market take their decisions following only their own self-interest,
then which of these follow?
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a) Market will inevitably fail.

b) Markets will need to be corrected by government intervention.
c) There will be need of an effective regulator.
d) Markets will function well.
Solution: d)
Justification: Classical thought is also known as the non-

interventionist school.
As per them, markets function best without government interference. So,

(b) is wrong.
Similarly, (c) will also be wrong.
Classical economists observe that markets generally regulate themselves,

when free of coercion. Adam Smith referred to this as a metaphorical
"invisible hand," which moves markets toward their natural equilibrium.
So, (d) is correct and (a) incorrect.
Learning: In contrast to classical economics, Keynesian economics

supports policies such as government intervention, deficit spending,
control of the money supply, and a progressive income tax to counter
recession and income inequality.
Most classical economists reject these ideas. They assert that state
intervention makes situations of economic slowdown worse.
Q Source: Page 5: Chapter 1: 12th Macroeconomics NCERT
3. Which of the following statements is correct about how Francois

Bernier describes India?
a) A bleak situation in comparison to developments in Europe.
b) A land of high spiritual and scientific intelligence
c) A land of astounding beauty and natural resources
d) A highly affluent society integrated with the world
Solution: a)
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Learning: François Bernier, a Frenchman, was a doctor, political

philosopher and historian. Like many others, he came to the Mughal
Empire in search of opportunities.
Bernier often travelled with the army.
In virtually every instance Bernier described what he saw in India as a

bleak situation in comparison to developments in Europe.
Q Source: Page 122: Chapter 5: Themes in Indian History – II: 12th

NCERT
4. It is theorized that over the long run exchange rates between any
two national currencies adjust to reflect differences in the price
levels in the two countries. The theory would become invalid when
1. There are barriers to trade and investment.
2. There is difference in productivity of labour and capital between
nations.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: a)
Justification: When trade happens without barriers, market forces

start operating across national borders.
People would import only the cheapest commodities (assuming quality is

same everywhere), and only that nation will export which produces it
cheapest. Exports from all other nations will come to zero.
Gradually all nations will export the commodities of their comparative

advantage (e.g. Gems and Jewelleries from India) and import those of
their least comparative advantage (e.g. handicrafts imported by USA).
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Slowly the exchange rates start converging, and reflect only the
difference in prices between nations, as hypothesized by the Purchasing
Power Parity (PPP) theory.
5. GDP deflator is a measure of

a) Level of prices in the economy
b) International competitiveness of the domestic sector
c) Industrial activity in the economy
d) Depreciation of production assets
Solution: a)
Justification: It is the ratio of the value of goods and services an

economy produces in a particular year at current prices to that at prices
prevailing during any other reference (base) year.
This ratio basically shows to what extent an increase in GDP or gross

value added (GVA) in an economy has happened on account of higher
prices, rather than increased output.
Since the deflator covers the entire range of goods and services produced
in the economy — as against the limited commodity baskets for the
wholesale or consumer price indices — it is seen as a more
comprehensive measure of inflation.
Option (b): While level of inflation in an economy may show its

international competitiveness, this is not why GDP deflator is used.
Moreover, the ration of real and nominal GDP does not make much
sense for international players as much the actual price level does.
Inflation may be high in an economy, yet it may be highly competitive
internationally due to low base prices of goods. So, (b) will be wrong.
6. A country will necessarily be economically developed if

1. It has large reserves of natural resources.
2. It has a large base of working age population.
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a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: Statement 1: The resource rich Africa and Latin America

have some of the poorest countries in the world, whereas many
prosperous countries have scarcely any natural wealth.
The economic wealth, or well-being, of a country thus does not

necessarily depend on the mere possession of resources; it is how these
resources are used in generating a flow of production and how, as a
consequence, income and wealth are generated from that process.
So, 1 will be incorrect.
Statement 2: It is called as demographic dividend, but its fruition

depends on how skilled, healthy and well-managed is the labour force.
India is a well known case.
7. Lingayats do not practise funerary rites prescribed in the

Dharmashastras because they believed
a) Funerary rites lead to environmental pollution.
b) After death a devotee will not return to this world.
c) Funerary rites are not needed as the soul will take another birth
soon.
d) It was a Brahmanical practice and they opposed its domination.
Solution: b)
Justification: Lingayats believe that on death the devotee will be

united with Shiva and will not return to this world. Therefore they do not
practise funerary rites such as cremation, prescribed in the
Dharmashastras. Instead, they ceremonially bury their dead.
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Learning: The twelfth century witnessed the emergence of a new

movement in Karnataka, led by a Brahmana named Basavanna (1106-
68) who was initially a Jaina and a minister in the court of a Chalukya
king. His followers were known as Virashaivas (heroes of Shiva) or
Lingayats (wearers of the linga).
The Lingayats challenged the idea of caste and the “pollution” attributed
to certain groups by Brahmanas. They also questioned the theory of
rebirth.

NCERT
8. An economy generally sacrifices consumption goods in order to

produce more capital goods. Why is it done?
1. To generate long-term growth
2. To avoid inflationary situations
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Justification: Statement 1 & 2: Capital goods are tools, implements

and machines etc that make production of consumption goods like
furniture possible.
Since resources are limited in an economy, they can either be

channelized for immediate consumption or immediate investment to
feed long-term consumption.
If they are channelized for immediate consumption (i.e. say we are

producing more aerated drinks but not drink making machines), a time
would come when demand would overshoot supply and economic
stagnation would follow.
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If however, a balance is maintained by sacrificing some consumption

goods to produce more capital goods, we can have more aerated drinks
in the future as there will be more machines to fulfil demand.
Only this generates long-term growth. This is why the RBI Governor has
prescribed moving from consumption spending to investment spending
for the Indian economy.
Q Source: Page 11-12: Chapter 2: 12th Macroeconomics NCERT
9. Why RBI is called as the ‘lender of last resort’?

a) If commercial banks refuse to give loan to a poor, he can always
turn to RBI for approval.
b) It acts as a guarantor for banks and extends loans to ensure the
solvency of the latter.
c) All heavy infrastructure projects that cannot be financed by
individual banks are financed by the RBI.
d) It is the last agency to assess the credit worthiness of borrowers.
Solution: b)
Learning: The total amount of deposits held by all commercial banks in

the country is much larger than the total size of their reserves.
So, if all the account-holders of all commercial banks in the country want
their deposits back at the same time, the banks will not have enough
means to satisfy the need of every accountholder and there will be bank
failures.
The Reserve Bank of India plays a crucial role here. In case of a crisis like
the above it stands by the commercial banks as a guarantor and extends
loans to ensure the solvency of the latter.
This system of guarantee assures individual account-holders that their

banks will be able to pay their money back in case of a crisis and there is
no need to panic thus avoiding bank runs.
This role of the monetary authority is known as the lender of last resort.

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10. Which of the following reduce accumulation of capital stock

in the economy?
1. Depreciation of assets
2. Spending on infrastructure rather than capacity building of
financial institutions
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: a)
Justification: Statement 1: Depreciation is the gradual decrease in the

economic value of the capital stock of a firm, nation or other entity.
It can happen either by physical depreciation like wear and tear or

obsolescence or by changes in the demand for the services of the capital
in question. So, 1 is correct.
Statement 2: Capital stock is anything that adds to the productive

capacity of the economy. Spending on infrastructure actually increase
the capital stock of the nation. So, 2 is wrong.
11. “The lotus which blooms without flower” or the “Fire raging in the
ocean” were terms used by the Kabir to describe
a) Socio-economic status of India
b) Efforts towards religious reforms in India
c) Nature of the Ultimate Reality
d) Poetical nature of Bhakti literature produced in India
Solution: c)
Learning: Some of Kabir’s poems are known as ulatbansi (upside-down

sayings), are written in a form in which everyday meanings are inverted.
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These hint at the difficulties of capturing the nature of the Ultimate

Reality in words: expressions such as “the lotus which blooms without
flower” or the “fire raging in the ocean” convey a sense of Kabir’s
mystical experiences.
He also used terms drawn from Vedantic traditions, alakh (the unseen),
nirakar (formless), Brahman, Atman, etc. Other terms with mystical
connotations such as shabda (sound) or shunya (emptiness) were drawn
from yogic traditions.

NCERT
12.The term ‘Base Effect’ is often used while discussing inflationary

trends in the Indian economy. It refers to
a) Segment wise inflation trends
b) Cost push inflation
c) Demand pull inflation
d) None of the above
Solution: d)
Learning: The base effect refers to the impact of the rise in price level
(i.e. last year’s inflation) in the previous year over the corresponding rise
in price levels in the current year (i.e., current inflation): if the price
index had risen at a high rate in the corresponding period of the previous
year leading to a high inflation rate, some of the potential rise is already
factored in, therefore a similar absolute increase in the Price index in the
current year will lead to a relatively lower inflation rates.
On the other hand, if the inflation rate was too low in the corresponding
period of the previous year, even a relatively smaller rise in the Price
Index will arithmetically give a high rate of current inflation.
Q Source: Often appears in Business news and Economic Surveys
13. Why do policymakers stress on high savings rate in the Indian

economy?
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1. Investments are financed by savings.

2. Saving discourages inflation causing consumption expenditure.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Justification: The basic macroeconomic identity that one should know

is:
C+S+T = C+I+G.... (i)
Here C is consumption, S is savings, T is taxes, I is investment and G is

government spending.
So, S+T=I+G..... (ii)
Any increase in investments can either be financed by high savings or

high taxes. So, 1 is correct.
Also, in equation (i), total income = C+S+T. When S increases C will

decrease also controlling inflationary trends in the economy.
Q Source: Improvisation: Page 25: Chapter 2: 12th Macroeconomics

NCERT
14.Revenue expenditure consists of all those expenditures of the

government which
a) Generally do not result in creation of physical or financial assets
b) Generally are withdrawn from the Public Accounts Fund of
India
c) Tackle special contingencies and exigencies of the government
departments
d) Help in implementation of new projects of the Government
Solution: a)
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Learning: Revenue expenditure consists of all those expenditures of the

government which do not result in creation of physical or financial
assets.
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).
15. The amara-nayaka system was a major political innovation of the

Vijayanagara Empire. The amara-nayakas were
a) Military commanders who were given territories to govern
b) Chiefs of major municipalities
c) Peasants who were made independent cultivators in order to
encourage greater loyalty to the crown
d) Independent spy advisors to the King
Solution: a)
Learning: Amara-nayakas collected taxes and other dues from

peasants, craftspersons and traders in the area.
They retained part of the revenue for personal use and for maintaining a
stipulated contingent of horses and elephants.
These contingents provided the Vijayanagara kings with an effective

fighting force with which they brought the entire southern peninsula
under their control.
The amara-nayakas sent tribute to the king annually and personally

appeared in the royal court with gifts to express their loyalty.

NCERT
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16.The term ‘factor cost’ is often used in the estimation of national

income. It is
a) Final market price of goods and services
b) Total Subsidies and taxes levied on factors
c) Total concessions given to units of production
Solution: d)
Learning: Factor Cost or Factor Income are the incomes received by

the owners of the production (the households) for rendering their factor
services to the producers.
It is a measure of national income or output based on the cost of factors

of production, instead of market prices.
This allows the effect of any subsidy or indirect tax to be removed from
the final measure.
17. If Gross Domestic Product (GDP) at market prices is growing at 5%

every year, what does it necessarily imply?
1. Manufacturing activity must be growing nearly 5% annually.
2. Total volume of goods and services produced must be growing
at 5% annually.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: GDP at market prices calculates total value of goods and

services produced within a year at market prices, and not at their actual
cost of production.
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So, even if only prices increased by 5% for all final goods and services
produced, GDP will increase by 5% without any ‘real’ increase in
production.
So, both 1 and 2 are incorrect.
18. If both the Consumer Price Index (CPI) and Wholesale Price
Index (WPI) increased by more than 10% within an year then
1. Prices of all goods and services musts have increased by more
than 10% within a year.
2. Labour wages must have increased by more than 10% within a
year.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: CPI and WPI do not capture increase in prices of all

goods and services in the economy.
So, 1 will be wrong as prices of only sample (representative goods) may

have increase leaving the prices of other goods and services constant.
GDP deflator takes into account all such goods and services.
CPI and WPI do not capture growth in labour wages. Even the CPI for
workers captures inflation in items consumed by the working class and
not wages per se. So, 2 would be wrong.
Q Source: Page 28-29: Chapter 2: 12th Macroeconomics NCERT

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19.The Mansabdari system was introduced by Akbar. What did

‘Mansab’ of an officer imply in the system?
1. Salary of the officer
2. Land granted to the Officer
3. Number of soldiers maintained by the officer
Select the correct answer using the codes below.
a) 1 and 2 only
b) 1 and 3 only
c) 3 only
d) 1, 2 and 3
Solution: b)
Learning: The word mansab is of Arabic origin meaning rank or

position. The system, hence, determined the rank of a government
official.
Every civil and military officer was given a ‘mansab’ and different
numbers which could be divided by ten were used for ranking officers. It
was also meant for fixing the salaries and allowances of officers.
It was a system whereby nobles were granted the rights to hold a jagir,
which meant revenue assignments (not land itself) for services rendered
by them but the authority bestowed upon them was not unbridled but
with the direct control of these nobles in the hands of the king. So, 2
would be wrong.

NCERT
20. In economics, the term ‘Social Marginal Cost (SMC)’ stands

for
a) Cost incurred in use of an additional unit of physical capital
b) Total social productivity of skilled labour
c) Costs that occur to the society in addition to the producer
d) All of the above
Solution: c)
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Learning: Externalities refer to the benefits (or harms) a firm or an

individual causes to another for which they are not paid (or penalised).
Firms have a private marginal cost and a social marginal cost.
The total cost to society as a whole for producing one further unit, or
taking one further action, in an economy is called as social cost.
This total cost of producing one extra unit of something is not simply the
direct cost borne by the producer, but also must include the costs to the
external environment and other stakeholders.
The idea of SMC is taken into account in evaluating investment projects.
Q Source: Improvisation on concept of marginal cost asked in Previous

UPSC papers: Chapter 2 (Point on Externalities): 12th Macroeconomics
NCERT
21.Net factor income from abroad includes

1. Remittances
2. Foreign investment
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Learning: The difference between a nation’s gross national product

(GNP) and gross domestic product (GDP) is called NFIA.
Net foreign factor income or NFIA is the difference between the

aggregate amount that a country’s citizens and companies earn abroad,
and the aggregate amount that foreign citizens and overseas companies
earn in that country.
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The NFIA level is generally not substantial in most nations, since factor
payments earned by their citizens and those paid to foreigners more or
less offset each other.
However, the NFAI's impact may be significant in smaller nations with

substantial foreign investment in relation to their economy and few
assets overseas, since their GDP will be quite high compared to GNP.
22. Public finance aims at which of the following objectives?

1. Allocating resources
2. Redistributing resources
3. Stabilising national income and employment
a) 1 and 2 only
b) 1 only
c) 2 and 3 only
d) 1, 2 and 3
Solution: d)
Justification & Learning: First, certain goods, referred to as public

goods (such as national defence, roads, government administration), as
distinct from private goods (like clothes, cars, food items), cannot be
provided through the market mechanism, i.e. by transactions between
individual consumers and producers and must be provided by the
government. This is the allocation function.
Second, through its tax and expenditure policy, the government attempts
to bring about a distribution of income that is considered ‘fair’ by society.
The government affects the personal disposable income of households by
making transfer payments and collecting taxes and, therefore, can alter
the income distribution. This is the distribution function.
Third, the economy tends to be subject to substantial fluctuations and

may suffer from prolonged periods of unemployment or inflation. The
overall level of employment and prices in the economy depends upon the
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level of aggregate demand which is a function of the spending decisions

of millions of private economic agents apart from the government.
23. During a situation of low demand, what role monetary policy

can play?
1. It can boost aggregate demand by printing more currency.
2. It can Increase liquidity in the market by selling bonds to the
public.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: Printing currency does not come under monetary policy.

It is a part of fiscal policy when the government desires to borrow freshly
printed money from RBI in exchange for government securities. So, 1 is
incorrect.
It will however stimulate demand.
Selling bonds to the public will actually reduce the liquidity in the
market as public now invest their savings in bonds and bills. So, 2 would
not stimulate aggregate demand and actually reduce it.
Q Source: Chapter 4: 12th Macroeconomics NCERT
24. Which of the following were the consequences of the Green

Revolution in India?
1. Revival of agricultural growth
2. Self-sufficiency in food grain production
3. End of exploitative feudal relationships all over India.
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a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3
Solution: a)
Justification: Statement 1: Agriculture growth, which had stagnated in

the 1950s, revived to more than 3% annually.
Statement 2: India became self-sufficient in food production. Food

production increased to 159 million tonnes in the mid 1980s from
meagre 50 mT in the 1950s.
Statement 3: Regions where GR was not introduced lagged behind

prosperous GR regions. These backward regions also witnessed rising
inter-caste violence due to the exploitative feudal relationships. So, it did
not end from India. Statement 3 is incorrect.
Q Source: Page 62: Chapter 4: 12th NCERT: Social Change and

Development in India
25. Consider the following.

1. Real GDP has increased year after year.
2. Government is continuously running a budget surplus.
The above then necessarily imply that
a) The Government is not spending on infrastructure creation.

b) The economy is suffering with very high inflation.
c) Tax yields are very low in the economy.
d) None of the above can be a correct assessment.
Solution: d)
Justification: Option (a): It is not necessary only a government

running a fiscal deficit focuses on infrastructure financing. If the Indian
government radically increases its tax collections, its can achieve both a
surplus and spending on infrastructure.
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Option (b): We cannot say. Moreover, the government is not spending

excess money and total supply in the economy is increasing.
Option (c): If tax yields were low, then a situation of budget surplus
maynot be achieved. Even if achieved, we cannot surely conclude this is
the case.
Q Source: Chapter 5: 12th NCERT Macroeconomics
26. Plan expenditure includes those kinds of expenditure which

a) Fall under Revenue expenditure
b) Create assets for the nation
c) Involve printing of currency
d) Generate tax expenditure
Solution: b)
Learning: The following may not apply to the present situation when
Planning Commission has been abolished.
For stepping up the rate of economic development five-year plans were

formulated. The expenditure incurred on the items relating to five year
plans is termed as plan expenditure. Such expenditure is incurred by the
Central Government.
A provision is made for such expenditure in the budget of the Central

Government. Assistance given by the Central Government to the State
Governments and Union Territories for plan purposes also forms part of
the plan expenditure.
27. Which of these bodies/agencies help augment human capital

in India?
1. National Council of Educational Research and Training
(NCERT)
2. All India Council of Technical Education (AICTE)
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3. Indian Council for Medical Research (ICMR)

4. University Grants Commission (UGC)
a) 1 and 3 only
b) 1, 2 and 4 only
c) 2 and 4 only
d) 1, 2, 3 and 4
Solution: d)
Justification: The concept of human capital recognizes that not all

labor is equal and that the quality of employees can be improved by
investing in them. The education, experience and abilities of an
employee have an economic value for employers and for the economy as
a whole.
Education or health provided/facilitated by these bodies can significantly

increase human capital. So, all 1, 2, 3 and 4 are correct.
Q Source: Revision: 12th NCERT: Human Geography
28. Why is paper money accepted as a unit of exchange?

a) It has intrinsic value.
b) It is authorized by the Central Bank as a legal tender.
c) It derives its legitimacy from conventions.
d) International Monetary Fund (IMF) authorizes the use of paper
money in all nations.
Solution: b)
Justification: The value of the currency notes and coins is derived

from the guarantee provided by the issuing authority of these items.
Every currency note bears on its face a promise from the Governor of
RBI that if someone produces the note to RBI, or any other commercial
bank, RBI will be responsible for giving the person purchasing power
equal to the value printed on the note.
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The same is also true of coins. Currency notes and coins are therefore
called fiat money. They do not have intrinsic value like a gold or silver
coin. They are also called legal tenders as they cannot be refused by any
citizen of the country for settlement of any kind of transaction.
29. What is speculative demand of money?

a) Money that people require for immediate purchases
b) Money that is invested in long-term capital market instruments
c) Money that is saved with the households in anticipation of a
crisis
d) Money which is used to buy and sell short-term market
instruments
Solution: d)
Learning: This is a Keynesian term. Option (a) is called transactions

demand of money.
Option (b) is not speculative demand of money as long-term investments

are in nature of savings, not speculation.
Option (c) is precautionary demand of money, again a Keynesian term.
Learning: An individual may hold her wealth in the form of landed

property, bullion, bonds, money etc.
When they invest in bonds, different people have different expectations

regarding the future movements in the market rate of interest based on
their private information regarding the economy.
When the interest rate is very high everyone expects it to fall in future
and hence anticipates capital gains from bond-holding. Hence people
convert their money into bonds. Thus, speculative demand for money is
low.
The reverse condition is true also.

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30. Consider the following statements about Kashmir Stag.

1. It is the State Animal of Jammu and Kashmir.
2. Its only habitat is dense riverine forests.
3. It is listed as critically endangered by the IUCN.
a) 1 and 2 only
b) 1 only
c) 2 and 3 only
d) 1 and 3 only
Solution: d)
Justification: It lives in dense riverine forests, high valleys, and

mountains of the Kashmir valley and northern Chamba in Himachal
Pradesh. So, 2 is wrong.
Due to habitat destruction, over-grazing by domestic livestock, and

poaching they are at threat.
Hangul, the only Asiatic survivor or sub-species of the European red

deer, was once widely distributed in the mountains of Kashmir.
But, they are now scattered within 141 km² of the Dachigam National
Park located on foothills of Zabarwan range on the outskirts of Srinagar.
Q Source: Revision: Critically Endangered Species and State animals
31. Monetary policy becomes ineffective in stimulating demand in an

economy when
a) Liquidity trap occurs.
b) Economy is operating at excess capacity.
c) The government is running a fiscal deficit.
d) Foreign Exchange Rate is stable.
Solution: a)
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Justification: A liquidity trap occurs when low / zero interest rates fail
to stimulate consumer spending and monetary policy becomes
ineffective.
In such as situation, an increase in the money supply could fail to

increase spending because interest rates can't fall further.
A liquidity trap means consumers' preference for liquid assets (cash) is

greater than the rate at which the quantity of money is growing.
So any attempt by policymakers to get individuals to hold non-liquid

assets in the form of consumption by increasing the money supply won't
work.
32. Consider the following statements.

1. Debtors suffer due to low inflation.
2. Lenders suffer due to high inflation.
3. Bond Holders suffer due to sudden spike of interest rates.
a) 1 and 2 only
b) 3 only
c) 1 only
d) 1, 2 and 3 only
Solution: d)
Justification: Suppose a bank (lender) gave loan to a customer

(debtor) at 10% annual simple interest rate.
Assume inflation is at 6% right now, i.e. the value of money is eroded by

6% every year or effective money holding reduces by 6%.
This means the real or effective interest rate (or return on loan) that the
bank receives is only 4% (10-6).
If inflation increases, real returns to banks decrease and thus 2 would be

correct.
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By the same logic, 1 would be correct too.
If interest rates spike suddenly, bonds become unattractive for bond

holders. This is because now a lower priced bond can offer the same
fixed return that now their high priced bond (purchased at promise of
low interest rates) does. So, 3 is also correct.
33. Chronologically, which of these event(s) happened after the

invasion of Nadir Shah?
1. Ahmad Shah Abdali defeats the Marathas in the third battle of
Panipat
2. The diwani of Bengal transferred to the East India Company
3. Humayun defeated by Sher Shah
a) 1 and 2 only
b) 2 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: a)
Learning: The Mughal empire had been weakened by ruinous wars of

succession in the three decades following the death of Aurangzeb, the
Hindu Marathas of the Maratha Empire had captured vast swathes of
territory in Central and Northern India, whilst many of the Mughal
nobles had asserted their independence and founded small states.
Its ruler, Muhammad Shah, proved unable to stop the disintegration of

the empire.
The imperial court administration was corrupt and weak whereas the
country was extremely rich whilst Delhi’s prosperity and prestige was
still at a high. Nadir Shah, attracted by the country's wealth, then sought
plunder like so many other foreign invaders before him.

NCERT
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34. Narrow and Broad Money is differentiated based on their

a) Issuing authority
b) Liquidity
c) Total volume of circulation
d) Convertibility to foreign exchange
Solution: b)
Justification: It is not (a) since all currency that can be classified as

either narrow or broad money is issued by the RBI.
It cannot be (d) either as whether narrow or broad money all are

convertible upto legal limits.
RBI publishes figures for four alternative measures of money supply, viz.
M1, M2, M3 and M4.
M1 is most liquid and easiest for transactions whereas M4 is least liquid

of all. M3 is the most commonly used measure of money supply. It is also
known as aggregate monetary resources
35. Banks hold a part of the money people keep in their bank
deposits as reserve money. Why?
1. It is profitable for the banks to do so.
2. It is mandated by the RBI.
3. It helps avoid bank failures.
4. It is contributed to the forex reserves.
a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 2, 3 and 4 only
Solution: b)
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Justification: Keeping reserves is costly for banks, as, otherwise, they

could lend this balance to interest earning investment projects. So, 1 is
wrong.
RBI requires commercial banks to keep reserves in order to ensure that

banks have a safe cushion of assets to draw on when account holders
want to be paid. So, 2 and 3 are correct.
4 is wrong as Forex reserves are made of foreign exchange, SDR and

Gold.
36. The zamindars held extensive personal lands – milkiyat – in

Mughal India. These lands could NOT be
1. Cultivated for the private use of zamindars
2. Sold or mortgaged at will by Zamindars
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification & Learning: Milkiyat lands were cultivated for the

private use of zamindars, often with the help of hired or servile labour.
The zamindars could sell, bequeath or mortgage these lands at will. So,
both 1 and 2 are wrong.
Zamindars also derived their power from the fact that they could often
collect revenue on behalf of the state, a service for which they were
compensated financially.

NCERT
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37. When the Statutory

Liquidity Ratio (SLR) is increased
a) Banks may cut their lending rates.
b) Money circulation in the economy becomes weak.
c) Inflation will shoot up in the next quarter.
d) Banks will lend lesser funds to retail customers.
Solution: d)
Justification: Statutory Liquidity Ratio which requires the banks to

maintain a given fraction of their total demand and time deposits in the
form of specified liquid assets.
It can be in cash, gold or securities etc. Therefore, as SLR increases,

banks have less to lend.
38. High powered money is the

a) Total liability of the monetary authority of the country
b) Reserves kept with RBI
c) Money circulating in security markets
d) Special deposits kept with the Government of India
Solution: a)
Learning: It is also called as monetary base.
It consists of currency (notes and coins in circulation with the public and
vault cash of commercial banks) and deposits held by the Government of
India and commercial banks with RBI.
If a member of the public produces a currency note to RBI the latter

must pay her value equal to the figure printed on the note.
Similarly, the deposits are also refundable by RBI on demand from

deposit-holders. These items are claims which the general public,
government or banks have on RBI and hence are considered to be the
liability of RBI.

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39. The word Yavana was used in India for

a) Greeks and other peoples who entered the Indian subcontinent
b) Prisoners sentenced for seditious acts
c) Messengers who visited Royal courts
d) Devadasis who performed for social service
Solution: a)
Learning: In Sanskrit sources, the usage of the words "Yona", "Yauna",

"Yonaka", "Yavana" or "Javana" etc. appears repeatedly, and particularly
in relation to the Greek kingdoms which neighbored or sometimes
occupied the Punjab region over a period of several centuries from the
4th century BCE to the first century CE.
Examples are the Seleucid Empire, the Greco-Bactrian Kingdom and the
Indo-Greek Kingdom.
The Yavanas are mentioned in detail in Sangam literature epics such as

Pattinappalai, describing their brisk trade with the Early Cholas in the
Sangam period.

NCERT
40. If RBI undertakes Open Market Operations (OMOs), which

of the following is most likely to occur?
a) The GDP of India will suddenly increase.
b) It will alter the total money supply in the economy in the short-
term.
c) Foreign Institutional Investors (FIIs) will suddenly withdraw
from the Indian markets.
d) It will immediately cut operating costs for banks.
Solution: b)
Justification: RBI purchases (or sells) government securities to the

general public in a bid to increase (or decrease) the stock of high
powered money in the economy.
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FIIs would not withdraw as OMOs concern with general public.

Moreover, OMOs only affect money supply, and not the confidence of
FIIs. So, (c) will be wrong.
GDP of India may increase or decrease, but that is a medium term

phenomenon about which nothing can be accurately said. (a) is not the
most appropriate here.
Operating and lending costs of banks can be cut if their reserve size is
reduced. OMOs do not aim at this, and hence (d) is wrong.
41.According to Francois Bernier, some of the fundamental

differences between Mughal India and Europe was/were
1. Lack of private property in land in Mughal India
2. Non-existent armies in Europe unlike in Mughal India
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: a)
Justification: Statement 1: Owing to crown ownership of land, argued

Bernier, landholders could not pass on their land to their children. So
they were averse to any long-term investment in the sustenance and
expansion of production.
Statement 2: Strong armies existed in both Europe and Mughal India.

The organization systems were different though.

NCERT
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42. What is ‘Paradox of Thrift’?

a) Individuals save more during a recession which further depletes
growth prospects.
b) Capital not flowing from developed countries to developing
countries despite high savings in developed economies
c) Increase in economic efficiency and savings leading to reduced
demand
d) If everyone tries to work during times of recession there will be
even more unemployment.
Solution: a)
Learning: It states that individuals try to save more during an

economic recession, which essentially leads to a fall in aggregate demand
and hence in economic growth. Such a situation is harmful for everybody
as investments give lower returns than normal.
This theory was heavily criticized by non-Keynesian economists on the

ground that an increase in savings allows banks to lend more. This will
make interest rates go down and lead to an increase in lending and,
therefore, spending.
Q Source: Page 58 (Fig 4.6): Chapter 4: 12th Macroeconomics NCERT
43. Public goods are always

1. Rival goods
2. Exclusive goods
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: A rival good is a good whose consumption by one

consumer prevents simultaneous consumption by other consumers, for
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e.g. a berth on train. But, not all public goods are rival, for e.g. defense,
police security, public parks etc. So, 1 is wrong.
Excludable goods are those for which one can at low cost prevent those
who have not paid for the good from consuming it. You can require
people to pay for a stamp before you deliver mail or pay for a ticket
before they board a train; you cannot cheaply or easily prevent people
from entering a park or from listening to a radio station. So, 2 is not
always correct.
44. Which of the following taxes form part of revenue receipts of

the Government of India?
1. Corporation Tax
2. Excise Taxes
3. Income Tax
Select the correct answer using the code below.
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: d)
Learning: Tax revenues, an important component of revenue receipts,

comprise of direct taxes – which fall directly on individuals (personal
income tax) and firms (corporation tax), and indirect taxes like excise
taxes (duties levied on goods produced within the country), customs
duties (taxes imposed on goods imported into and exported out of India)
and service tax.
45. Consider the following about Alvars and Nayanars.

1. They disapproved of the caste based discrimination in India.
2. They did not produce any written compositions.
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3. Women devotees were not allowed within the Sangha.
a) 1 and 2 only
b) 1 only
c) 2 and 3 only
d) 3 only
Solution: b)
Justification: Statement 1: Some historians suggest that the Alvars and

Nayanars initiated a movement of protest against the caste system and
the dominance of Brahmanas or at least attempted to reform the system.
To some extent this is corroborated by the fact that bhaktas hailed from
diverse social backgrounds ranging from Brahmanas to artisans and
cultivators and even from castes considered “untouchable”.
Statement 2 & 3: The compositions of Andal, a woman Alvar, were

widely sung. Another woman, Karaikkal Ammaiyar, a devotee of Shiva,
adopted the path of extreme asceticism in order to attain her goal. So, 3
is wrong.
One of the major anthologies of compositions by the Alvars, the Nalayira

Divyaprabandham, was frequently described as the Tamil Veda, thus
claiming that the text was as significant as the four Vedas in Sanskrit
that were cherished by the Brahmanas. So, 2 is also wrong.

NCERT
46. In an open economy without government intervention, trade

deficit can be financed by
1. Excess of investments over savings
2. Capital inflows
3. High consumption expenditure
a) 1 and 2 only
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b) 2 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: b)
Justification: Trade deficit is financed by excess of savings over

investments, not the other way round. Only with more savings can we
pay for the imports bill as well as manage the domestic investments. So,
1 is wrong.
Total balance of payments consists of current account (includes trade,

invisibles, remittances etc) as well as capital account. Capital inflows like
FDI, FII help bridge the trade deficit and neutralize BoP. So, 2 is correct.
High consumption expenditure will further inflate the import bill and
cause trade deficit. So, 3 is incorrect.
Q Source: Chapter 6: 12th Macroeconomics NCERT
47. Which of these bills presented along with the Annual

Financial Statement, provides details of the imposition, abolition,
remission, alteration or regulation of taxes proposed in the
Budget?
a) Appropriate Bill
b) Medium Term Framework Bill
c) Finance Bill
d) Budget Amendment Bill
Solution: c)
Learning: While the Finance Bill generally seeks approval of the

Parliament for raising resources through taxes, cess etc., an
Appropriation Bill seeks Parliament's approval for the withdrawal from
the Consolidated Fund of India to meet the approved expenditures of the
Government. So, (a) is wrong.
No such bill as (b) exists.

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Finance Bill is a secret bill introduced every year in Lok Sabha (Lower
chamber of the Parliament) immediately after the presentation of the
Union Budget, to give effect to the financial proposals of the Government
of India for the immediately following financial year.
It is through the Finance Act that amendments are made to the various
Acts like Income Tax Act 1961, Customs Act 1962 etc.
Q Source: Page 62 (Footnote): Chapter 5: 12th Macroeconomics NCERT
48. The main items of non-plan expenditure are

1. Interest payments
2. Defence services
3. Subsidies
4. Salaries
5. Pensions
a) 3, 4 and 5 only
b) 1 and 2 only
c) 1, 2 and 3 only
d) 1, 2, 3, 4 and 5
Solution: d)
Learning: Budget documents classify total revenue expenditure into

plan and non-plan expenditure.
Plan revenue expenditure relates to central Plans (the Five-Year Plans)

and central assistance for State and Union Territory Plans.
Non-plan expenditure, the more important component of revenue

expenditure, covers a vast range of general, economic and social services
of the government.
Interest payments on market loans, external loans and from various

reserve funds constitute one of the single largest components of non-
plan revenue expenditure.

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49. The main items of capital receipts of the government are

1. Monetization of RBI’s reserves
2. Market borrowings of the government from the public
3. Earnings from import and export duties
4. Loans received from international organisations
5. Sale of shares in Public Sector Undertakings (PSUs)
a) 2, 4 and 5 only
b) 1 and 2 only
c) 1, 4 and 5 only
d) 1, 2, 3, 4 and 5
Solution: a)
Learning: The main items of capital receipts are loans raised by the
government from the public which are called market borrowings,
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.
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).
50. Consider the following statements about Lala Lajpat Rai.

1. He was a co-founder of the Anglo-Vedic School alongwith
Dayanand Saraswati.
2. He was the founder of Servants of the People Society.
3. He had been the President of the Indian National Congress
(INC).
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a) 2 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3
Solution: c)
Learning: Statement 1: He had helped establish the nationalistic

Dayanand Anglo-Vedic School and became a follower of Dayanand
Saraswati (founder of the Arya Samaj). He was not its co-founder.
Statement 2: In 1921, he had founded Servants of the People Society, a

non-profit welfare organisation, in Lahore, which shifted based to Delhi
after partition, and has branches in many parts of India.
Statement 3: In 1888 and 1889 he was a delegate to the annual sessions

of Indian National Congress (INC) and was elected as its President in the
Calcutta Special Session of 1920.
Q Source: 150th birth anniversary of Lala Lajpat Rai.
51. The exercise of Gender Budgeting usually involves which of these

activities in India?
1. Special initiatives for empowering women
2. Examination of the utilisation of resources allocated for women
3. Impact of public expenditure and policies of the government on
women
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: d)
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Learning: GB entails dissection of the Government budgets to establish

its gender differential impacts and to ensure that gender commitments
are translated in to budgetary commitments.
Gender Budgeting Cells (GBCs) in Union Government are envisaged to

serve as focal points for coordinating gender budgeting initiatives within
their Ministries and across Departments. So far 56
Ministries/Department have confirmed setting up of a cell/nominating a
nodal person.
Q Source: Page 64 (Footnote): Chapter 5: 12th Macroeconomics NCERT
52. The Central Bank does not intervene via foreign reserve
transactions in the system of
a) Flexible Exchange Rates
b) Fixed Exchange Rates
c) Managed Exchange rates
d) All of the above
Solution: a)
Learning: In a system of flexible exchange rates (also known as floating

exchange rates), the exchange rate is determined by the forces of market
demand and supply.
In a completely flexible system, the central banks follow a simple set of

rules – they do nothing to directly affect the level of the exchange rate, in
other words they do not intervene in the foreign exchange market (and
therefore, there are no official reserve transactions).
53. The Union Government has issued detailed guidelines to

tackle the outbreak of Zika Virus Disease in the wake of reported
cases in Americas. Which of the following would help best control
its outbreak in India?
a) Controlling mosquito population
b) Proper Polio immunization
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c) Cutting down air pollution in cities

d) Sterilizing soil by special chemicals
Solution: a)
Learning: Zika virus is spread to people through mosquito bites. The

most common symptoms of Zika virus disease are fever, rash, joint pain,
and conjunctivitis (red eyes). The illness is usually mild with symptoms
lasting from several days to a week. Severe disease requiring
hospitalization is uncommon.
The World Health Organisation (WHO) has declared an international

public health emergency over the explosive spread of the mosquito-
borne Zika virus.
Q Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=135922

1. Fiscal deficit will always cause inflation.
2. Fiscal deficit will always slowdown the economy.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: Statement 1: One of the main criticisms of deficits is that

they are inflationary. This is because when government increases
spending or cuts taxes, aggregate demand increases. If firms can’t match
(supply) increased demand, inflation will occur.
However, if there are unutilised resources, output is held back by lack of

demand. A high fiscal deficit is accompanied by higher demand and
greater output and, therefore, need not be inflationary.
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Statement 2: Only when persistently high fiscal deficit is run by the

government, it crowds out private sector investment, leads to inflation
and slows down the economy.
But a carefully crafted fiscal deficit will actually facilitate production by

private sector by building human and physical capital. So, 2 is also
wrong.
55. The degree of openness of an economy can be measured best

by
a) Total foreign trade as a proportion of GDP
b) Annual GDP growth trends
c) Volume of total money supply as a proportion of GDP
d) Number of financial institutions active in the economy
Solution: a)
Learning: An open economy is one that trades with other nations in

goods and services and, most often, also in financial assets.
First, when a nation buys foreign goods, this spending escapes as a

leakage from the circular flow of income decreasing aggregate demand.
Second, our exports to foreigners enter as an injection into the circular

flow, increasing aggregate demand for domestically produced goods.
Total foreign trade (exports + imports) as a proportion of GDP is a

common measure of the degree of openness of an economy.
Even a closed economy can have high number of FIs or have high GDP
growth rate or high circulation of money supply. So, other options are
wrong.
56. Union Law Ministry has constituted an expert committee to

review the Specific Relief Act, 1963. The review will help
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a) Ensure ease of doing business

b) Reduce atrocities against Scheduled Castes
c) Cut down total number of laws in the country
d) Modify the framework for implementation of Directive
Principles of State Policy
Solution: a)
Learning: The committee has been tasked to examine the Act in the
context of present scenario involving many issues and dealing with its
various provisions.
The present scenario issues mainly include public private partnerships,

contract based infrastructure development and other public projects
involving enforceability of the contracts and huge investments thereof.
The review of the Act will also ensure ease of doing business as it has
been not amended since its inception to meet need of changing time.
57. The current account of India records

1. Exports and imports in goods and services
2. Remittances
3. Official Gifts and grants by foreign nations
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: d)
Learning: The current account records exports and imports in goods

and services and transfer payments.
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Trade in services denoted as invisible trade (because they are not seen to
cross national borders) includes both factor income (payment for inputs-
investment income, that is, the interest, profits and dividends on our
assets abroad minus the income foreigners earn on assets they own in
India) and non-factor income (shipping, banking, insurance, tourism,
software services, etc.).
Transfer payments are receipts which the residents of a country receive

‘for free’, without having to make any present or future payments in
return.
They consist of remittances, gifts and grants. They could be official or

private.
58. Which of these factors affect the exchange rate of rupee?

1. Demand for Indian goods abroad
2. Net foreign investments in India
3. Political stability of India
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: d)
Justification: Statement 1 refers to Indian exports. More the exports,

more is the demand of rupee abroad, and higher is the appreciation of
the currency.
Statement 2: Higher FDI movements also indicate demand for rupee as

investors must convert their currency into rupees for investments.
Statement 3: Due to political instability FIIs can fly away from the
country, FDI becomes less attractive. So, exchange rate fluctuates due to
in and out movement of foreign capital.
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59. The term ‘Agrarian structure’ in context of rural India

implies
1. Distribution of landholding
2. Land management system
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Learning: The term Agrarian Structure denotes all of the existing and
lasting production and living conditions found in a rural region. It
comprises social, technological, and economic elements and determines
the achievable productivity, income and its distribution, and the rural
population's social situation.
The system of land tenure governs the traditional or legal rights

individuals or groups have to land and the resulting social relationships
among the rural population. Its components are the system of land
ownership and system of labour organization.
The land management system covers the factors on which the cultivation
of land is possible. The main factors on which the cultivation of a land
depends are land, labor and capital.

60. 'Credit creation' in terms of money multiplier is done by

a) Only Central Bank
b) Only governments
c) Banks
d) Financial authorities that regulate markets
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Solution: c)
Justification & Learning: Money creation is the process by which the

money supply of a country or a monetary region (such as the Eurozone)
is increased. A central bank may introduce new money into the economy
(termed "expansionary monetary policy", or "money printing" by
detractors) by purchasing financial assets or lending money to financial
institutions.
Commercial bank lending also creates money in the form of demand

deposits. Through fractional reserve banking, bank lending multiplies
the amount of broad money beyond the amount of base money originally
created by the central bank.
The exact process has been explained very well in the NCERT book.
61.Fiscal deficit is the difference between

a) Government’s total expenditure and its total receipts excluding
borrowing
b) Government’s total revenue expenditure and its revenue
receipts excluding borrowing
c) Government’s planned expenditure and its total receipts
d) Government’s total expenditure and its total receipts including
borrowing
Solution: a)
Justification: Gross fiscal deficit = Total expenditure – (Revenue

receipts + Non-debt creating capital receipts)
Non-debt creating capital receipts are those receipts which are not
borrowings and, therefore, do not give rise to debt. Examples are
recovery of loans and the proceeds from the sale of PSUs.

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Assertion (A): A rise in the interest rates at home often leads to an

appreciation of the domestic currency.
Reason (R): Higher interest rates attract foreign capital.
In the context of the above, which of these is correct?
a) A is correct, and R is an appropriate explanation of A.

b) A is correct, but R is not an appropriate explanation of A.
c) A is correct, but R is incorrect.
d) Both A and R are incorrect.
Solution: a)
Justification: There are huge funds owned by banks, multinational

corporations and wealthy individuals which move around the world in
search of the highest interest rates.
The country offering higher interest rates (with safe assets) attract
foreign capital and increase the demand for the currency of that nation
(since foreign currency must be converted to domestic currency for
investment).
Higher demand for domestic currency leads to its appreciation.
63. Which of the following raises the productivity of the

economy?
a) Factor payments
b) Investment expenditure
c) Rent expenditure
d) Transfer payments
Solution: b)
Justification: You should choose the most appropriate option here.
Factor payments include payment towards land, labour, raw material

etc. Since these are regular payments towards factors which are already
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productive, they don’t add to their productive capacity. For e.g. a

training programme may have increased labour productivity. Mere wage
payment may not lead to the same. So, (a) is not most appropriate here.
By the same logic, (c) is incorrect.
Transfer payments do not directly absorb resources or create output.

They are considered as a redistribution of resources in the economic
system, e.g. pensions. So, (d) is also not correct.
Learning: Investment expenditure refers to the expenditure incurred

either by an individual or a firm or the government for the creation of
new capital assets like machinery, building etc.
Net investment expenditure is calculated by deducting the depreciation

charges from the value of existing capital assets.
64. The term ‘twin deficits’ is often in news. It occurs

a) When an economy has both current account deficit and fiscal
deficit
b) When an economy has deficits in both trade and remittances
c) When an economy is suffering from both depreciation of
exchange rate and high inflation
d) When a nation with high fiscal deficit is suffering from savings
deficit
Solution: a)
Learning: Twin deficit identity is used to refer to a nation’s current

account deficits and a simultaneous fiscal deficit.
The term became widely used in the 1980s until the 1990s because the
United States experienced the “twin” deficits during this timeframe.
However, there is no reason why current account deficits and
government budget deficits occurs at the same time.
This is an insightful article on the issue

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http://www.thehindubusinessline.com/opinion/columns/harish-
damodaran/the-twin-deficits-myth/article3961796.ece
India was running high twin deficits in the post-2008 phase.
65. United Nations Disengagement Observer Force (UNDOF)

maintains the ceasefire between
a) Syria and Israel
b) Jordan and Egypt
c) Kuwait and Iraq
d) Saudi Arabia and Kuwait
Solution: a)
Learning: The UNDOF was established in 1974 by United Nations

Security Council (UNSC) following the agreed disengagement of Syrian
and Israeli forces in the Golan Heights.
Since then, UNDOF has remained in the area to maintain the ceasefire
between Syrian and Israeli forces and to supervise the implementation of
the disengagement agreement.
Major General Jai Shanker Menon of India has been appointed as the
Head of Mission and Force Commander of the United Nations
Disengagement Observer Force (UNDOF).
Q Source: http://www.thehindu.com/news/international/ban-
appoints-major-general-menon-as-undof-head/article8188708.ece
66. If we subtract ‘X’ from the fiscal deficit we will obtain

‘Primary deficit’. Here ‘X is
a) Interest payments
b) Major subsidies
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c) Defence expenditure
d) Recovery of loans
Solution: a)
Learning: Primary deficit refers to difference between fiscal deficit of

the current year and interest payments on the previous borrowings.
Primary Deficit = Fiscal Deficit – Interest Payments
The total borrowing requirement of the government includes the interest

commitments on accumulated debts. Primary deficit reflects the extent
to which such interest commitments have compelled the government to
borrow in the current period.
67. Which of these are recent reforms in the International

Monetary Fund (IMF)?
1. Voting quotas of some emerging economies has been increased.
2. IMF’s Executive Board will now consist entirely of elected
Executive Directors.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Justification: Statement 1: India’s voting rights increased by 0.3%

from the current 2.3% to 2.6%. China’s voting rights increased by 2.2%
from current 3.8% to 6 %. These reforms shifted more than 6% of the
quota shares to emerging and developing countries from the US and
European countries. Russia and Brazil also have gained from the
reforms.
Statement 2: Currently, US, Japan, France, Germany, Italy, United

Kingdom, Canada and Saudi Arabia are among the top ten members of
the IMF.
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But, the member countries with the 5 largest quotas appointed the
Executive Director, which will be made to an entirely elected system
now. So, 2 is correct.
Learning: The reforms were agreed upon by the 188 members of the
IMF in 2010 in the aftermath of the global financial meltdown. However,
there implementations were delayed due to the time taken by the US
Congress to approve the changes.
Q Source: http://www.thehindu.com/business/india-gets-more-
voting-rights-in-imf-reforms/article8163827.ece
68. Which of the following cities have been shortlisted under the
Smart Cities Mission?
1. Bhubneshwar
2. Jabalpur
3. Udaipur
4. Guwahati
a) 1 and 2 only
b) 2 and 4 only
c) 1 only
d) 1, 2, 3 and 4
Solution: d)
Learning: The Union Ministry of Urban Development has shortlisted

20 cities from 11 States and Delhi Union Territory in the list of first batch
of Smart Cities Mission.
Among the shortlisted 20 Smart cities, 3 are from Madhya Pradesh, 2

each are from Maharashtra, Rajasthan Tamil Nadu, Karnataka, Gujarat
and Andhra Pradesh and 1 each from Odisha, Kerala, Delhi (UT), Assam
and Punjab.
Q Source: http://indianexpress.com/article/india/india-news-
india/india-20-smart-cities-list/
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69. Which of these argument(s) support the existence of an

International Monetary System (IMS)?
1. An international payment system will fail if there is no authority
to force the use of a particular currency in all international
transactions.
2. An IMS is needed to decide on the exchange rate values of all
currencies used in international transactions.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: Statement 1: Even presently, there is no IMS that

enforces the use of a particular currency in all international transactions.
What is required is confidence in a currency, which is given by national
governments themselves announcing the free convertibility of their
currencies. So, 1 is not correct.
Statement 2: Presently a mix of managed and floating exchange rate

system is followed by most national governments themselves. The
foreign exchange market forces decide the currency value. It will be a
disaster if a single authority supersedes market forces. So, 2 is wrong.
70. Functioning of which of the following authorities have a

bearing on the Indian financial markets?
1. Reserve Bank of India (RBI)
2. Future Commodities Regulator (FCR)
3. Securities and Exchange Board of India (SEBI)
a) 1 and 2 only
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b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: c)
Justification: RBI regulates financial markets by way of sterilization,

issuing bonds, managing liquidity like CRR, SLR etc. So, 1 is correct.
SEBI regulates security markets which are a part of the larger financial
markets. So, 3 is also correct.
There is no body like FCR. So, 2 is incorrect.
Learning: The Financial Markets Committee (FMC) of RBI meets daily

to review the consistency between policy rate, money market rates, and
liquidity conditions.
We will covering more questions on SEBI and other financial bodies

when we touch Ramesh Singh’s book on Indian economy.
71. Indian Computer Emergency Response Team (CERT-In) works

under the
a) Ministry of Communications and Information Technology
b) Ministry of Defence
c) Ministry of Home Affairs
d) Department of Science and Technology
Solution: a)
Learning: Its objective:
• To protect Indian cyberspace and software infrastructure against

destructive and hacking activities. Strengthen security-related
defence of the Indian Internet domain.
• Issue guidelines, vulnerability notes, advisories, and whitepapers
regarding to information security practices, prevention,
procedures, response and reporting of cyber security incidents.
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The Union Cabinet has recently apprised the Memorandum of

Understandings (MoUs) signed between CERT-In and 3 nations –
Japan, Singapore and Malaysia.

1. It sets a three-year rolling target for specific fiscal indicators.
2. It examines whether revenue expenditure can be financed
through revenue receipts on a sustainable basis.
3. It evaluates how productively capital receipts including market
borrowings are being utilised.
The above refer to which of these documents?
a) Fiscal Policy Strategy Statement

b) Medium-term Fiscal Policy Statement
c) Macroeconomic Framework Statement
d) Annual Financial Statement
Solution: b)
Justification: The Fiscal Policy Strategy Statement sets the priorities of

the government in the fiscal area, examining current policies and
justifying any deviation in important fiscal measures. So, (a) is incorrect.
The Macroeconomic Framework Statement assesses the prospects of the

economy with respect to the GDP growth rate, fiscal balance of the
central government and external balance. So, (c) is incorrect.
(d) refers to Budget.
73. Consider the following about Al-Biruni’s work and stay in

India.
1. He translated Patanjali’s work on grammar into Arabic.
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2. He rejected Indian philosophy and spiritual ideas.

3. Al-Biruni disapproved of the existence of the caste system in
India.
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: a)
Learning: Statement 1: Al-Biruni’s expertise in several languages

allowed him to compare languages and translate texts. He translated
several Sanskrit works, including Patanjali’s work on grammar, into
Arabic. For his Brahmana friends, he translated the works of Euclid (a
Greek mathematician) into Sanskrit.
Statement 2: Al-Biruni spent years in the company of Brahmana priests

and scholars, learning Sanskrit, and studying religious and philosophical
texts. So, 2 is wrong.
Statement 3: In spite of his acceptance of the Brahmanical description of

the caste system, Al-Biruni disapproved of the notion of pollution. He
remarked that everything which falls into a state of impurity strives and
succeeds in regaining its original condition of purity.

NCERT
74. Suppose the economy has slowed down causing massive

unemployment and high inflation. Keynesians may solve the
problem by?
a) Reducing the regulation of financial markets
b) Liberalizing private economic system
c) A combination of fiscal stimulus and appropriate monetary
policies
d) De-nationalizing public sector units to increase efficiency of
economic system
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Solution: c)
Justification: Options (a) and (b) do not give any clear way as to how
the crisis would be managed. Also, both (a) and (b) may lead to further
deterioration of the situation as per Keynesians.
Option (d) may not solve the crisis as greater privatization does not solve
the problems of high unemployment. It is also not clear how this will
tackle inflation. So, (d) is incorrect.
Learning: Keynesian economists often argue that private sector

decisions sometimes lead to inefficient macroeconomic outcomes which
require active policy responses by the public sector, in particular,
monetary policy actions by the central bank and fiscal policy actions by
the government, in order to stabilize output over the business cycle.
Keynesian economics advocates a mixed economy – predominantly

private sector, but with a role for government intervention during
recessions.
75. ‘Sterilization’ by RBI is related most with

a) Foreign capital flows
b) Domestic infrastructure investment
c) Fiscal deficit
d) Taxation policy of the government
Solution: a)
Learning: Entry or outgo of foreign exchange in India has the potential

to alter total money supply. This is because the inflow must be converted
into Indian currency, and the outflow must be converted from Indian
currency back to foreign exchange.
RBI undertakes an open market sale of government securities of an

amount equal to the amount of foreign exchange inflow in the economy,
thereby keeping the stock of high powered money and total money
supply unchanged.
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Thus it sterilises the economy against adverse external shocks. This

operation of RBI is known as sterilisation.
76. As per Ibn Battuta’s account of India

1. Slaves were openly sold in markets and exchanged as gifts.
2. Female slaves were employed by the Sultan to keep a watch on
his nobles.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Learning: It appears from Ibn Battuta’s account that there was

considerable differentiation among slaves.
Some female slaves in the service of the Sultan were experts in music and
dance, and Ibn Battuta enjoyed their performance at the wedding of the
Sultan’s sister.
Female slaves were also employed by the Sultan to keep a watch on his
nobles.

NCERT
77.Non-tax revenue of the central government mainly consists of

1. Interest receipts on account of loans forwarded by the
government
2. Dividends and profits on investments made by the government
3. Cash grants-in-aid from foreign countries and international
organisations
4. Wealth tax and estate duties levied on select properties
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a) 1 and 4 only
b) 2 and 3 only
c) 1, 2 and 3 only
d) 1, 2, 3 and 4
Solution: c)
Learning: Statement 4 is about direct taxes like wealth tax, gift tax and
estate duty which have never been of much significance in terms of
revenue yield and have thus been referred to as ‘paper taxes’. Hence, it is
wrong.
Fees and other receipts for services rendered by the government also
form part of the non-tax revenue.
78. The Cabinet Committee on Economic Affairs (CCEA) has

given its in principle approval for the Hybrid Annuity Model for
implementing the National Highway Projects. Under the model
1. The government will bear all the risk of the project.
2. The highway toll tax will be collected by the private parties
alone.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: d)
Justification: The highway toll tax will be collected by the government

i.e. by the National Highways Authority of India (NHAI) unlike in the
build, operate and transfer (BOT) toll model in which the private sector
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collects it. Thus, private party does not have to bear traffic and inflation
risks as the project cost are also inflation indexed. So, 2 is wrong.
There is distribution of risk between the government and private players

in this model, hence, it will speed up the construction of highways in the
country. So, 1 is wrong.
The private developer will be able to recover his investment from the
government by receiving annuity payments over a period of 15 years. For
toll collection, there is a separate provision for operation and
management payments by the government to the concessionaire.
79. Khanqahs and silsilas are related with the tradition of

a) Gibbism
b) Batya
c) Sufism
d) Kahina
Solution: c)
Learning: Institutionally, the sufis began to organise communities

around the hospice or khanqah (Persian) controlled by a teaching master
known as shaikh (in Arabic), pir or murshid (in Persian).
Sufi silsilas began to crystallise in different parts of the Islamic world

around the twelfth century. The word silsila literally means a chain,
signifying a continuous link between master and disciple, stretching as
an unbroken spiritual genealogy to the Prophet.

NCERT
80. What do you understand by the term ‘Total Factor

Productivity (TFP)’?
a) The total rent extracted from any one of the factors
b) The total value of output produced using any one of the factors
c) Effects on total output not caused by an increase in inputs
d) High growth of land and labour in a nation
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Solution: c)
Learning: You can understand TFP in this way.
Suppose a nation has the same stock of land, labour and capital, and yet
the next year its GDP increased by more than it increased last year.
How do we explain this?
Either the individual productivities of factors would have increased, or

the total combined productivity of the economy has increased.
This can happen either by better technology, better infrastructure etc

that improve the total factor productivity of the economy.
So, it is called as the part of the output not explained by the change in
inputs.
Q Source: Improvisation – Often appears in Business news and

Economic Surveys: Chapter 2: 12th Macroeconomics NCERT

1. Portuguese travellers Domingo Paes and Fernao Nuniz visited
his Empire.
2. He defeated the Sultans of Bijapur, Golconda, the Bahmani
Sultanate and the Raja of Odisha.
3. The south Indian mathematician Nilakantha Somayaji lived in
his Empire.
The above refer to?
a) Sadasiya Raya
b) Krishnadevaraya
c) Venkata I
d) Thimma Bhupala
Solution: b)
Learning: Krishnadeva Raya’s rule was characterised by expansion and

consolidation. This was the time when the land between the
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Tungabhadra and Krishna rivers (the Raichur doab) was acquired (1512),
the rulers of Orissa were subdued (1514) and severe defeats were
inflicted on the Sultan of Bijapur (1520).
Although the kingdom remained in a constant state of military

preparedness, it flourished under conditions of unparalleled peace and
prosperity.
Krishnadeva Raya is credited with building some fine temples and

adding impressive gopurams to many important south Indian temples.
He also founded a suburban township near Vijayanagara called

Nagalapuram after his mother. Some of the most detailed descriptions of
Vijayanagara come from his time or just after.

NCERT
82. The error of double counting in the estimation of national

income is related to which of the following goods?
a) Consumption goods
b) Intermediate goods
c) Consumer durables
d) Capital goods
Solution: b)
Justification: Intermediate goods are crucial inputs to any production

process and a significant part of our manpower and capital stock are
engaged in production of these goods.
However, since we are dealing with value of output, we should realise

that the value of the final goods already includes the value of the
intermediate goods that have entered into their production as inputs.
Counting them separately will lead to the error of double counting.

Whereas considering intermediate goods may give a fuller description of
total economic activity, counting them will highly exaggerate the final
value of our economic activity.

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83. The difference between Gross Domestic Product (GDP) and

Gross National Product (GNP) is
a) Depreciation
b) Subsidies
c) Indirect and Direct Taxes
d) Net Factor Income from abroad
Solution: d)
Learning: GNP ≡ GDP + Factor income earned by the domestic factors

of production employed in the rest of the world – Factor income earned
by the factors of production of the rest of the world employed in the
domestic economy
Hence, GNP ≡ GDP + Net factor income from abroad
If we deduct depreciation from GNP the measure of aggregate income

that we obtain is called Net National Product (NNP).
84. Ain-i Akbari written by Abu’l Fazl deals with records of

administrative arrangements made for
1. Ensuring cultivation by the state
2. Collection of revenue by the agencies of the state
3. Regulation of the relationship between the state and rural
zamindars
a) 1 and 2 only
b) 1 only
c) 2 and 3 only
d) 1, 2 and 3
Solution: d)
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Learning: The Ain-i-Akbari is the third volume of the Akbarnama

containing information regarding Akbar's reign in the form of, what
would be called in modern times, administration reports, statistical
compilations, or gazetteers.
The Ain-i-Akbari is itself divided into five books. The first book deals
with the imperial household, and the second with the servants of the
emperor, the military and civil services. The third book deals with the
imperial administration, containing the regulations for the judicial and
executive departments. The fourth book contains information about
Hindu philosophy, science, social customs and literature. The fifth book
contains sayings of Akbar

NCERT
85. Muqaddam or mandal in the 16th-17th century India was

a) Headman of the panchayat
b) Tax collection officer
c) Adviser to the King
d) Local police head
Solution: a)
Learning: Some sources suggest that the headman was chosen through
the consensus of the village elders, and that this choice had to be ratified
by the zamindar.
Headmen held office as long as they enjoyed the confidence of the village
elders, failing which they could be dismissed by them.
The chief function of the headman was to supervise the preparation of

village accounts, assisted by the accountant or patwari of the panchayat.

NCERT
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86. Cash Reserve Ratio (CRR)

as a part of monetary policy instruments is used to control
1. Inflation
2. Fiscal deficit
3. Foreign Direct Investment (FDI)
a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2 and 3
Solution: c)
Justification: Fiscal deficit pertains to the government’s financial

decisions and budget making. CRR does not control it. A very high value
of CRR may however affect fiscal deficit choices of the government. So, 2
is a wrong choice.
FDI is controlled through executive policy by way of approvals, caps etc

and not through CRR. So, 3 is also wrong.
If RBI decides to increase CRR, banks will keep more cash with RBI and
lend less. Lower money circulation would reduce economic activity,
demand and thus manage inflation.
87. Consider the following about land revenue collection in

Mughal India.
1. Land revenue was imposed without assessing the land.
2. Payment was accepted only in kind, not in cash.
a) 1 only
b) 2 only
c) Both 1 and 2
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d) None
Solution: d)
Learning: The Mughal state tried to first acquire specific information

about the extent of the agricultural lands in the empire and what these
lands produced before fixing the burden of taxes on people. So, 1 is
wrong.
The land revenue arrangements consisted of two stages – first,

assessment and then actual collection. The jama was the amount
assessed, as opposed to hasil, the amount collected.
Akbar decreed that while he should strive to make cultivators pay in

cash, the option of payment in kind was also to be kept open. So, 2 is
incorrect.
While fixing revenue, the attempt of the state was to maximise its claims.

NCERT
88. The official Amin in Mughal India was responsible for

a) Ensuring that imperial regulations were carried out in the
provinces
b) Ensuring external security and diplomatic negotiations for
peace
c) Supervising the work of all welfare departments at the Centre
d) Extracting dues from defaulters
Solution: a)
Learning: This is an account of important officers appointed in Mughal

India.
Appointment of two officers with specific responsibilities and

jurisdiction was only to avoid concentration of authority in one single
individual and also to see that one acts as a check over the other.
• Sarkars were further subdivided as paraganas.

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• In each paragana a Shiqdar, an Amin, a Fotehdar, a Munsif, a

Hindi writer and a Persian writer were appointed besides the
Patwari, Chaudari and the Muqaddam who acted as the
intermediaries between the government and the people.
• The duty of the Shiqdar was to maintain law and order, to collect
the revenue and also decide the legal matters.
• The Amin was in charge of collection of the land revenue and he
too tried civil and revenue cases.
• The Amin and the Shiqdar were of the same rank. The treasurer
was Fotehdar and the entire amount collected was kept in his
custody.
• He also maintained account of the income and expenditure of the
paragana.

NCERT
89. The real exchange rate measures

a) Prices abroad relative to those at home
b) International speculation in major currencies
c) Depletion of foreign exchange reserves
d) Capital outflow abroad relative to inflow at home
Solution: a)
Concept: Nominal exchange rate is the price of one currency in terms of

number of units of some other currency.
To incorporate the purchasing power and competitiveness aspect and,

therefore, make the measure more meaningful, real exchange rates are
used.
The real exchange rates are nothing but the nominal exchange rates
multiplied by the price indices of the two countries.
This means the market price level of goods and services, given by indices
of inflation. So if the price level in the US is higher than the price level in
India, then the real exchange rate of the rupee versus the dollar will be
greater than the nominal exchange rate.
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Suppose the nominal exchange rate is Rs 50 and US prices are greater

than Indian prices, a dollar will buy more in India than what Rs 50 will
buy in the US.
90. Which of the following were the main features of the

Mansabdari system?
1. The king himself appointed the mansabdars
2. A mansabdar could be asked to give only military assistance.
3. The mansabdari system was hereditary.
a) 1 only
b) 1 and 2 only
c) 3 only
d) 1 and 3 only
Solution: a)
Justification: The King could enhance the mansab, lower it or remove

it and not just appoint it. So, 1 is correct.
A mansabdar could be asked to perform any civil or military service. So,

2 is incorrect.
The mansabdari system was not hereditary as appointments were made

by the King. So, 3 is incorrect.
Learning: There were 33 categories of the mansabdars. The lowest

mansabdar commanded 10 soldiers and the highest 10,000 soldiers.
Only the princes of the royal family and most important Rajput rulers
were given a mansab of 10,000.
Q Source: Improvisation: Page 214: Chapter 8: Themes in Indian

History – II: 12th NCERT
91.In India, coins are issued by the

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a) Government of India
b) Reserve Bank of India
c) Foreign Exchange Management Authority (FEMA)
d) State Governments
Solution: a)
Learning: In India currency notes are issued by the Reserve Bank of

India (RBI), which is the monetary authority in India.
However, coins are issued by the Government of India. The

responsibility for coinage vests with the Government of India on the
basis of the Coinage Act, 2011 as amended from time to time. The
Government of India is also responsible for the designing and minting of
coins in various denominations.
Apart from currency notes and coins, the balance in savings, or current
account deposits, held by the public in commercial banks is also
considered money.
92. Under sulh-i kul introduced by Akbar

1. Religion was placed above the authority of the state.
2. State did not arbitrarily discriminate between religions.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: b)
Justification: Statement 1: In sulh-i kul all religions and schools of

thought and freedom of expression but on condition that they did not
undermine the authority of the state or fight among themselves.
In fact, the ideal of sulh-i kul was implemented through state policies.
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Statement 2: Akbar abolished the tax on pilgrimage in 1563 and jizya in

1564 as the two were based on religious discrimination.
All Mughal emperors gave grants to support the building and

maintenance of places of worship. Even when temples were destroyed
during war, grants were later issued for their repair.
So, 1 is wrong and 2 will be correct.

NCERT
93. The convergence theory states that all industrial systems,

whether capitalist or communist, would converge in their social,
political and economic systems because of the determinant effects
of
a) Technology
b) Human evolution
c) Natural laws
d) Administrative systems
Solution: a)
Learning: Modern industrial systems of production, it is argued, create

a highly complicated division of labour, incorporating wide-ranging
skills and competencies.
Furthermore, unlike preindustrial societies, industrialized societies are

more open there are greater opportunities and freedom for people to
choose their work and improve their social status, rather than this being
determined by traditions and the family they were born into.
In industrialized countries specialist education is believed to become

more important, and a higher level of literacy and skills is found among
the population as a whole.
These lead to homogenization of industrial societies irrespective of the

system they follow.

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94. Why higher GDP does not necessarily imply higher welfare
for a nation?
1. It may not be uniformly distributed.
2. It does not include the spending by the unorganized sector.
3. It does not capture extent of environmental degradation.
a) 1 and 2 only
b) 2 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: c)
Justification: Statement 1: Rise in GDP may be concentrated in the

hands of very few individuals or firms. For the rest, the income may in
fact have fallen. In such a case the welfare of the entire country cannot be
said to have increased.
Statement 2: It captures spending by all groups as it accounts for all

goods and services consumed in the economy. 2 is incorrect.
Statement 3: Take an example to understand this statement.
For e.g. the value added of the refinery will be counted as part of the
GDP of the economy. But in carrying out the production the refinery may
also be polluting the nearby river. This may cause harm to the people
who use the water of the river. Hence their utility will fall. So, 3 is
correct.
95. Which of the following indices best reflects the international

competitiveness of a nation’s goods?
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a) Real Effective Exchange Rate (NEER)

b) Nominal Exchange Rate (NER)
c) Consistent Balance of Payments (BoP) Surplus
d) Annual short-term capital Inflows
Solution: a)
Justification: The real exchange rate is often taken as a measure of a

country’s international competitiveness as it takes into account
purchasing power at both nations.
When RER is averaged (weighted) for all trade partners, its called REER
and best reflects international competitiveness.
Option (d) referring mainly to FIIs is more related to the overall

attractiveness of the economy and its GDP growth rate rather than its
export products.
A nation can run a BoP surplus even by importing less and exporting just
enough to maintain it or by receiving large sums of lent money to foreign
institutions. So, (c) is also wrong.
96. Conversion of multi-crop lands to monoculture lands can be

harmful to agriculture because
1. It depletes soil nutrients severely leaving soil weak for any
healthy plant growth.
2. It increases the susceptibility of farm to pests.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Justification: Statement 1: Planting the same crop in the same place

each year zaps nutrients from the earth and leaves soil weak and unable
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to support healthy plant growth. This is because the same nutrient is

depleted again and again without replenishment.
Since soil structure and quality becomes so poor, farmers are forced to
use chemical fertilizers to encourage plant growth and fruit production.
Statement 2: The ecological landscape of monoculture is that there is a

massive range of genetically identical plants, against a backdrop of
genetically diverse and adapting wild pests, which include fungi,
bacteria, insects etc.
These pests each have a wild population with its own biodiversity, and
their populations are constantly changing and adapting to being able to
eat the crops or benefit from the presence of whatever crops are being
grown.
The monoculture crops, however, are not changing, and are not able to
adapt because they have no genetic variability and are not allowed to
reproduce naturally.
Q Source: Improvisation: Page 63: Chapter 4: 12th NCERT: Social

Change and Development in India
97. How can the government finance spending excess of revenue

receipts?
1. Borrowing from markets
2. Borrowing from foreign nations
3. Requesting grants from international bodies
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
Solution: d)
Learning: The fiscal deficit will have to be financed through borrowing

as the revenue generated is insufficient.
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Thus, it indicates the total borrowing requirements of the government

from all sources.
From the financing side Gross fiscal deficit = Net borrowing at home +
Borrowing from RBI + Borrowing from abroad
Net borrowing at home includes that directly borrowed from the public
through debt instruments (for example, the various small savings
schemes) and indirectly from commercial banks through Statutory
Liquidity Ratio (SLR).
98. A Central Public Sector Enterprise cannot attain Maharatna

status if
1. It is not listed on the stock exchange.
2. Its operations are limited to India.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None
Solution: c)
Justification & Learning: The CPSEs fulfilling the following criteria

are eligible to be considered for grant of Maharatna status.
(i) Having Navratna status.

(ii) Listed on Indian stock exchange with minimum prescribed
public shareholding under SEBI regulations.
(iii) Average annual turnover of more than Rs. 25,000 crore, during
the last 3 years.
(iv) Average annual net worth of more than Rs. 15,000 crore, during
the last 3 years.
(v) Average annual net profit after tax of more than Rs. 5,000
crore, during the last 3 years.
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(vi) Should have significant global presence/international

operations.
Q Source: Revision: Improvisation on Navratnas (Grey Box) - 11th

NCERT – Indian Economic Development
99. Lichens are not likely to be found in

1. Cold regions
2. Tree barks
3. Sites with heavy air pollution due to sulphur dioxide
a) 1 and 3 only
b) 1 and 2 only
c) 3 only
d) They can be found at all these places.
Solution: c)
Justification: Lichens and mosses can be found in even Tundra

regions. So, 1 is incorrect.
Lichens can be commonly found growing on the barks of trees as a thin

greenish-white crust. So, 2 is wrong too.
The hardy lichens are useful bio-indicators for air pollution, especially
sulphur dioxide pollution, since they derive their water and essential
nutrients mainly from the atmosphere rather than from the soil. So, they
are not likely to be found there due to heavy damage. Statement 3 is
correct.
Q Source: Revision: 12th NCERT Biology
100. In an economy, the situation of ‘Liquidity Trap’ happens

when
a) All commercial banks fail
b) Interest rates are too low
c) External economy is highly volatile
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d) Interest rates are too high
Solution: b)
Learning: Suppose interest rates are very low presently. Now seeing
this, every investor feels since the interest rates are below normal and so
low, they must rise.
If the interest rates rise, the bonds that the investors hold with them
become unattractive.
Thus, everyone in the economy will hold their wealth in money balance
and if additional money is injected within the economy it will be used up
to satiate people’s craving for money balances without increasing the
demand for bonds and without further lowering the rate of interest
below the floor R minimum. Such a situation is called a liquidity trap.
1.

INSIGHTS ON INDIA MOCK PRELIMINARY EXAM - 2016

INSIGHTS ON INDIA MOCK TEST – 11
GENERAL STUDIES
PAPER-I
Time Allowed: 2 Hours Maximum Marks: 200
INSTRUCTIONS
1. IMMEDITELY AFTER THE COMMENCEMENT OF THE EXAMINATION, YOU SHOULD
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http://www.insightsonindia.com
INSIGHTS ON INDIA MOCK TEST SERIES FOR CIVIL SERVICES PRELIMINARY EXAM 2016
http://www.insightsonindia.com INSIGHTS Page 1

1. How can two nations with the 3. Which of the following
same money supply have statements is correct about how
different Gross Domestic Product Francois Bernier describes India?
(GDP)? a) A bleak situation in
1. Circulation of the same money comparison to developments
supply happens differently in in Europe.
both economies. b) A land of high spiritual and
2. Labour productivity can be scientific intelligence
different in the two c) A land of astounding beauty
economies. and natural resources
d) A highly affluent society
integrated with the world
a) 1 only
b) 2 only
c) Both 1 and 2 4. It is theorized that over the long
d) None run exchange rates between any
two national currencies adjust to
reflect differences in the price
2. As per Classical Economic levels in the two countries. The
thought, if the buyers and sellers theory would become invalid
in each market take their when
decisions following only their 1. There are barriers to trade and
own self-interest, then which of investment.
these follow? 2. There is difference in
a) Market will inevitably fail. productivity of labour and
b) Markets will need to be capital between nations.
corrected by government
intervention.
c) There will be need of an a) 1 only
effective regulator. b) 2 only
d) Markets will function well. c) Both 1 and 2
d) None

5. GDP deflator is a measure of d) It was a Brahmanical practice
a) Level of prices in the economy and they opposed its
b) International competitiveness domination.
of the domestic sector
c) Industrial activity in the
economy 8. An economy generally sacrifices
d) Depreciation of production consumption goods in order to
assets produce more capital goods. Why
is it done?
1. To generate long-term growth
6. A country will necessarily be 2. To avoid inflationary
economically developed if situations
1. It has large reserves of natural
resources.
2. It has a large base of working a) 1 only
age population. b) 2 only
c) Both 1 and 2
d) None
a) 1 only
b) 2 only
c) Both 1 and 2 9. Why RBI is called as the ‘lender
d) None of last resort’?
a) If commercial banks refuse to
give loan to a poor, he can
7. Lingayats do not practise always turn to RBI for
funerary rites prescribed in the approval.
Dharmashastras because they b) It acts as a guarantor for
believed banks and extends loans to
a) Funerary rites lead to ensure the solvency of the
environmental pollution. latter.
b) After death a devotee will not c) All heavy infrastructure
return to this world. projects that cannot be
c) Funerary rites are not needed financed by individual banks
as the soul will take another are financed by the RBI.
birth soon. d) It is the last agency to assess
the credit worthiness of
borrowers.

10. Which of the following 13. Why do policymakers stress on

reduce accumulation of capital high savings rate in the Indian
stock in the economy? economy?
1. Depreciation of assets 1. Investments are financed by
2. Spending on infrastructure savings.
rather than capacity building 2. Saving discourages inflation
of financial institutions causing consumption
expenditure.
a) 1 only
b) 2 only a) 1 only
c) Both 1 and 2 b) 2 only
d) None c) Both 1 and 2
d) None
11. “The lotus which blooms without

flower” or the “Fire raging in the 14.Revenue expenditure consists of
ocean” were terms used by the all those expenditures of the
Kabir to describe government which
a) Socio-economic status of India a) Generally do not result in
b) Efforts towards religious creation of physical or
reforms in India financial assets
c) Nature of the Ultimate Reality b) Generally are withdrawn from
d) Poetical nature of Bhakti the Public Accounts Fund of
literature produced in India India
c) Tackle special contingencies
and exigencies of the
12.The term ‘Base Effect’ is often government departments
used while discussing d) Help in implementation of
inflationary trends in the Indian new projects of the
economy. It refers to Government
a) Segment wise inflation trends
b) Cost push inflation
c) Demand pull inflation

15. The amara-nayaka system was a 2. Total volume of goods and
major political innovation of the services produced must be
Vijayanagara Empire. The growing at 5% annually.
amara-nayakas were
a) Military commanders who
were given territories to a) 1 only
govern b) 2 only
b) Chiefs of major municipalities c) Both 1 and 2
c) Peasants who were made d) None
independent cultivators in
order to encourage greater
loyalty to the crown 18. If both the Consumer Price
d) Independent spy advisors to Index (CPI) and Wholesale Price
the King Index (WPI) increased by more
than 10% within an year then
1. Prices of all goods and
16.The term ‘factor cost’ is often services musts have increased
used in the estimation of national by more than 10% within a
income. It is year.
a) Final market price of goods 2. Labour wages must have
and services increased by more than 10%
b) Total Subsidies and taxes within a year.
levied on factors
c) Total concessions given to Which of the above is/are correct?
units of production a) 1 only
d) None of the above b) 2 only
c) Both 1 and 2
d) None
17. If Gross Domestic Product (GDP)
at market prices is growing at 5%
every year, what does it 19.The Mansabdari system was
necessarily imply? introduced by Akbar. What did
1. Manufacturing activity must ‘Mansab’ of an officer imply in
be growing nearly 5% the system?
annually. 1. Salary of the officer
2. Land granted to the Officer

3. Number of soldiers 22. Public finance aims at
maintained by the officer which of the following objectives?
1. Allocating resources
Select the correct answer using the
2. Redistributing resources
codes below.
3. Stabilising national income
a) 1 and 2 only and employment
b) 1 and 3 only
c) 3 only
codes below.
d) 1, 2 and 3
a) 1 and 2 only
b) 1 only
20. In economics, the term c) 2 and 3 only
‘Social Marginal Cost (SMC)’ d) 1, 2 and 3
stands for
a) Cost incurred in use of an
additional unit of physical 23. During a situation of low
capital demand, what role monetary
b) Total social productivity of policy can play?
skilled labour 1. It can boost aggregate demand
c) Costs that occur to the society by printing more currency.
in addition to the producer 2. It can Increase liquidity in the
d) All of the above market by selling bonds to the
public.

21.Net factor income from abroad
includes a) 1 only
1. Remittances b) 2 only
2. Foreign investment c) Both 1 and 2
d) None
a) 1 only
b) 2 only 24. Which of the following
c) Both 1 and 2 were the consequences of the
d) None Green Revolution in India?
1. Revival of agricultural growth
2. Self-sufficiency in food grain
production

3. End of exploitative feudal
relationships all over India.
27. Which of these
Select the correct answer using the bodies/agencies help augment
codes below. human capital in India?
1. National Council of
a) 1 and 2 only
Educational Research and
b) 1 and 3 only
Training (NCERT)
c) 2 and 3 only
2. All India Council of Technical
d) 1, 2 and 3
Education (AICTE)
3. Indian Council for Medical
Research (ICMR)
25. Consider the following. 4. University Grants
1. Real GDP has increased year Commission (UGC)
after year.
2. Government is continuously Select the correct answer using the
running a budget surplus. codes below.
The above then necessarily imply that a) 1 and 3 only

b) 1, 2 and 4 only
a) The Government is not c) 2 and 4 only
spending on infrastructure d) 1, 2, 3 and 4
creation.
b) The economy is suffering with
very high inflation.
28. Why is paper money
c) Tax yields are very low in the
accepted as a unit of exchange?
economy.
a) It has intrinsic value.
d) None of the above can be a
b) It is authorized by the Central
correct assessment.
Bank as a legal tender.
c) It derives its legitimacy from
conventions.
26. Plan expenditure includes d) International Monetary Fund
those kinds of expenditure which (IMF) authorizes the use of
a) Fall under Revenue paper money in all nations.
expenditure
b) Create assets for the nation
c) Involve printing of currency
d) Generate tax expenditure

29. What is speculative b) Economy is operating at
demand of money? excess capacity.
a) Money that people require for c) The government is running a
immediate purchases fiscal deficit.
b) Money that is invested in d) Foreign Exchange Rate is
long-term capital market stable.
instruments
c) Money that is saved with the
households in anticipation of a 32. Consider the following
crisis statements.
d) Money which is used to buy 1. Debtors suffer due to low
and sell short-term market inflation.
instruments 2. Lenders suffer due to high
inflation.
3. Bond Holders suffer due to
30. Consider the following sudden spike of interest rates.
statements about Kashmir Stag.
1. It is the State Animal of
codes below.
Jammu and Kashmir.
2. Its only habitat is dense a) 1 and 2 only
riverine forests. b) 3 only
3. It is listed as critically c) 1 only
endangered by the IUCN. d) 1, 2 and 3 only
codes below.
33. Chronologically, which of
a) 1 and 2 only these event(s) happened after the
b) 1 only invasion of Nadir Shah?
c) 2 and 3 only 1. Ahmad Shah Abdali defeats
d) 1 and 3 only the Marathas in the third
battle of Panipat
2. The diwani of Bengal
31. Monetary policy becomes transferred to the East India
ineffective in stimulating demand Company
in an economy when 3. Humayun defeated by Sher
a) Liquidity trap occurs. Shah

Select the correct answer using the 36. The zamindars held
codes below. extensive personal lands –
milkiyat – in Mughal India.
a) 1 and 2 only
These lands could NOT be
b) 2 only
1. Cultivated for the private use
c) 1 and 3 only
of zamindars
d) 1, 2 and 3
2. Sold or mortgaged at will by
Zamindars
34. Narrow and Broad Money Which of the above is/are correct?
is differentiated based on their
a) 1 only
a) Issuing authority
b) 2 only
b) Liquidity
c) Both 1 and 2
c) Total volume of circulation
d) None
d) Convertibility to foreign
exchange
37.
When the Statutory Liquidity
35. Banks hold a part of the
Ratio (SLR) is increased
money people keep in their bank
a) Banks may cut their lending
deposits as reserve money. Why?
rates.
1. It is profitable for the banks to
b) Money circulation in the
do so.
economy becomes weak.
2. It is mandated by the RBI.
c) Inflation will shoot up in the
3. It helps avoid bank failures.
next quarter.
4. It is contributed to the forex
d) Banks will lend lesser funds to
reserves.
retail customers.
codes below.
38. High powered money is the
a) 1 and 2 only
a) Total liability of the monetary
b) 2 and 3 only
authority of the country
c) 1 only
b) Reserves kept with RBI
d) 2, 3 and 4 only
c) Money circulating in security
markets
d) Special deposits kept with the
Government of India

2. Non-existent armies in
Europe unlike in Mughal
39. The word Yavana was used
India
in India for
a) Greeks and other peoples who Which of the above is/are correct?
entered the Indian
a) 1 only
subcontinent
b) 2 only
b) Prisoners sentenced for
c) Both 1 and 2
seditious acts
d) None
c) Messengers who visited Royal
courts
d) Devadasis who performed for
social service 42. What is ‘Paradox of Thrift’?
a) Individuals save more during
a recession which further
depletes growth prospects.
40. If RBI undertakes Open
b) Capital not flowing from
Market Operations (OMOs),
developed countries to
which of the following is most
developing countries despite
likely to occur?
high savings in developed
a) The GDP of India will
economies
suddenly increase.
c) Increase in economic
b) It will alter the total money
efficiency and savings leading
supply in the economy in the
to reduced demand
short-term.
d) If everyone tries to work
c) Foreign Institutional Investors
during times of recession
(FIIs) will suddenly withdraw
there will be even more
from the Indian markets.
unemployment.
d) It will immediately cut
operating costs for banks.
43. Public goods are always
1. Rival goods
2. Exclusive goods
41.According to Francois Bernier,
some of the fundamental Which of the above is/are correct?
differences between Mughal
a) 1 only
India and Europe was/were
b) 2 only
1. Lack of private property in
c) Both 1 and 2
land in Mughal India
d) None

46. In an open economy
without government
44. Which of the following
intervention, trade deficit can be
taxes form part of revenue
financed by
receipts of the Government of
1. Excess of investments over
India?
savings
1. Corporation Tax
2. Capital inflows
2. Excise Taxes
3. High consumption
3. Income Tax
expenditure
code below.
codes below.
a) 1 and 2 only
a) 1 and 2 only
b) 2 and 3 only
b) 2 only
c) 1 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
d) 1, 2 and 3
45. Consider the following

47. Which of these bills
about Alvars and Nayanars.
presented along with the Annual
1. They disapproved of the caste
Financial Statement, provides
based discrimination in India.
details of the imposition,
2. They did not produce any
abolition, remission, alteration or
written compositions.
regulation of taxes proposed in
3. Women devotees were not
the Budget?
allowed within the Sangha.
a) Appropriate Bill
Select the correct answer using the b) Medium Term Framework Bill
codes below. c) Finance Bill
d) Budget Amendment Bill
a) 1 and 2 only
b) 1 only
c) 2 and 3 only
48. The main items of non-plan
d) 3 only
expenditure are
1. Interest payments
2. Defence services
3. Subsidies
4. Salaries

5. Pensions 3. He had been the President of
the Indian National Congress
(INC).
code below.
a) 3, 4 and 5 only
codes below.
b) 1 and 2 only
c) 1, 2 and 3 only a) 2 only
d) 1, 2, 3, 4 and 5 b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3
49. The main items of capital
receipts of the government are
1. Monetization of RBI’s reserves 51. The exercise of Gender
2. Market borrowings of the Budgeting usually involves which
government from the public of these activities in India?
3. Earnings from import and 1. Special initiatives for
export duties empowering women
4. Loans received from 2. Examination of the utilisation
international organisations of resources allocated for
5. Sale of shares in Public Sector women
Undertakings (PSUs) 3. Impact of public expenditure
and policies of the
government on women
code below.
a) 2, 4 and 5 only
code below.
b) 1 and 2 only
c) 1, 4 and 5 only a) 1 and 2 only
d) 1, 2, 3, 4 and 5 b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
statements about Lala Lajpat Rai.
1. He was a co-founder of the 52. The Central Bank does not
Anglo-Vedic School alongwith intervene via foreign reserve
Dayanand Saraswati. transactions in the system of
2. He was the founder of a) Flexible Exchange Rates
Servants of the People Society. b) Fixed Exchange Rates

c) Managed Exchange rates a) Total foreign trade as a
d) All of the above proportion of GDP
b) Annual GDP growth trends
c) Volume of total money supply
53. The Union Government has as a proportion of GDP
issued detailed guidelines to d) Number of financial
tackle the outbreak of Zika Virus institutions active in the
Disease in the wake of reported economy
cases in Americas. Which of the
following would help best control 56. Union Law Ministry has
its outbreak in India? constituted an expert committee
a) Controlling mosquito to review the Specific Relief Act,
population 1963. The review will help
b) Proper Polio immunization a) Ensure ease of doing business
c) Cutting down air pollution in b) Reduce atrocities against
cities Scheduled Castes
d) Sterilizing soil by special c) Cut down total number of laws
chemicals in the country
d) Modify the framework for
implementation of Directive
54. Consider the following Principles of State Policy
statements.
1. Fiscal deficit will always cause
inflation. 57. The current account of
2. Fiscal deficit will always India records
slowdown the economy. 1. Exports and imports in goods
and services
Which of the above is/are correct? 2. Remittances
a) 1 only 3. Official Gifts and grants by
b) 2 only foreign nations
c) Both 1 and 2 Select the correct answer using the
d) None code below.
a) 1 and 2 only
55. The degree of openness of b) 2 and 3 only
an economy can be measured c) 1 and 3 only
best by d) 1, 2 and 3

58. Which of these factors 61.Fiscal deficit is the difference

affect the exchange rate of rupee? between
1. Demand for Indian goods a) Government’s total
abroad expenditure and its total
2. Net foreign investments in receipts excluding borrowing
India b) Government’s total revenue
3. Political stability of India expenditure and its revenue
receipts excluding borrowing
c) Government’s planned
code below.
expenditure and its total
a) 1 and 2 only receipts
b) 2 and 3 only d) Government’s total
c) 1 and 3 only expenditure and its total
d) 1, 2 and 3 receipts including borrowing
59. The term ‘Agrarian 62. Consider the following

structure’ in context of rural statements.
India implies
Assertion (A): A rise in the interest
1. Distribution of landholding
rates at home often leads to an
2. Land management system
appreciation of the domestic currency.
Reason (R): Higher interest rates
a) 1 only attract foreign capital.
b) 2 only
In the context of the above, which of
c) Both 1 and 2
these is correct?
d) None
a) A is correct, and R is an
60. 'Credit creation' in terms of appropriate explanation of A.
money multiplier is done by b) A is correct, but R is not an
a) Only Central Bank appropriate explanation of A.
b) Only governments c) A is correct, but R is incorrect.
c) Banks d) Both A and R are incorrect.
d) Financial authorities that
regulate markets

63. Which of the following 66. If we subtract ‘X’ from the
raises the productivity of the fiscal deficit we will obtain
economy? ‘Primary deficit’. Here ‘X is
a) Factor payments a) Interest payments
b) Investment expenditure b) Major subsidies
c) Rent expenditure c) Defence expenditure
d) Transfer payments d) Recovery of loans
64. The term ‘twin deficits’ is 67. Which of these are recent
often in news. It occurs reforms in the International
a) When an economy has both Monetary Fund (IMF)?
current account deficit and 1. Voting quotas of some
fiscal deficit emerging economies has been
b) When an economy has deficits increased.
in both trade and remittances 2. IMF’s Executive Board will
c) When an economy is suffering now consist entirely of elected
from both depreciation of Executive Directors.
exchange rate and high
inflation
d) When a nation with high fiscal a) 1 only
deficit is suffering from b) 2 only
savings deficit c) Both 1 and 2
d) None
65. United Nations

Disengagement Observer Force 68. Which of the following
(UNDOF) maintains the ceasefire cities have been shortlisted under
between the Smart Cities Mission?
a) Syria and Israel 1. Bhubneshwar
b) Jordan and Egypt 2. Jabalpur
c) Kuwait and Iraq 3. Udaipur
d) Saudi Arabia and Kuwait 4. Guwahati

codes below.
a) 1 and 2 only

b) 2 and 4 only Select the correct answer using the
c) 1 only code below.
d) 1, 2, 3 and 4
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
69. Which of these argument(s)
d) 1, 2 and 3
support the existence of an
International Monetary System
(IMS)?
71. Indian Computer Emergency
1. An international payment
Response Team (CERT-In) works
system will fail if there is no
under the
authority to force the use of a
a) Ministry of Communications
particular currency in all
and Information Technology
international transactions.
b) Ministry of Defence
2. An IMS is needed to decide on
c) Ministry of Home Affairs
the exchange rate values of all
d) Department of Science and
currencies used in
Technology
international transactions.

a) 1 only
statements.
b) 2 only
1. It sets a three-year rolling
c) Both 1 and 2
target for specific fiscal
d) None
indicators.
2. It examines whether revenue
expenditure can be financed
70. Functioning of which of the
through revenue receipts on a
following authorities have a
sustainable basis.
bearing on the Indian financial
3. It evaluates how productively
markets?
capital receipts including
1. Reserve Bank of India (RBI)
market borrowings are being
2. Future Commodities
utilised.
Regulator (FCR)
3. Securities and Exchange The above refer to which of these
Board of India (SEBI) documents?

a) Fiscal Policy Strategy c) A combination of fiscal
Statement stimulus and appropriate
b) Medium-term Fiscal Policy monetary policies
Statement d) De-nationalizing public sector
c) Macroeconomic Framework units to increase efficiency of
Statement economic system
d) Annual Financial Statement
75. ‘Sterilization’ by RBI is

73. Consider the following related most with
about Al-Biruni’s work and stay a) Foreign capital flows
in India. b) Domestic infrastructure
1. He translated Patanjali’s work investment
on grammar into Arabic. c) Fiscal deficit
2. He rejected Indian philosophy d) Taxation policy of the
and spiritual ideas. government
3. Al-Biruni disapproved of the
existence of the caste system
in India. 76. As per Ibn Battuta’s
account of India
1. Slaves were openly sold in
a) 1 only markets and exchanged as
b) 2 and 3 only gifts.
c) 2 and 3 only 2. Female slaves were employed
d) 1, 2 and 3 by the Sultan to keep a watch
on his nobles.

74. Suppose the economy has
slowed down causing massive a) 1 only
unemployment and high b) 2 only
inflation. Keynesians may solve c) Both 1 and 2
the problem by? d) None
a) Reducing the regulation of
financial markets
b) Liberalizing private economic
system

77.Non-tax revenue of the central b) 2 only
government mainly consists of c) Both 1 and 2
1. Interest receipts on account of d) None
loans forwarded by the
government
2. Dividends and profits on 79. Khanqahs and silsilas are
investments made by the related with the tradition of
government a) Gibbism
3. Cash grants-in-aid from b) Batya
foreign countries and c) Sufism
international organisations d) Kahina
4. Wealth tax and estate duties
levied on select properties
Select the correct answer using the 80. What do you understand by
code below. the term ‘Total Factor
Productivity (TFP)’?
a) 1 and 4 only a) The total rent extracted from
b) 2 and 3 only any one of the factors
c) 1, 2 and 3 only b) The total value of output
d) 1, 2, 3 and 4 produced using any one of the
factors
c) Effects on total output not
78. The Cabinet Committee on caused by an increase in
Economic Affairs (CCEA) has inputs
given its in principle approval for d) High growth of land and
the Hybrid Annuity Model for labour in a nation
implementing the National
Highway Projects. Under the
model 81. Consider the following
1. The government will bear all statements.
the risk of the project. 1. Portuguese travellers
2. The highway toll tax will be Domingo Paes and Fernao
collected by the private parties Nuniz visited his Empire.
alone. 2. He defeated the Sultans of
Bijapur, Golconda, the
Bahmani Sultanate and the
a) 1 only Raja of Odisha.

3. The south Indian 1. Ensuring cultivation by the
mathematician Nilakantha state
Somayaji lived in his Empire. 2. Collection of revenue by the
agencies of the state
The above refer to?
3. Regulation of the relationship
a) Sadasiya Raya between the state and rural
b) Krishnadevaraya zamindars
c) Venkata I
d) Thimma Bhupala
codes below.
a) 1 and 2 only
82. The error of double b) 1 only
counting in the estimation of c) 2 and 3 only
national income is related to d) 1, 2 and 3
which of the following goods?
a) Consumption goods 85. Muqaddam or mandal in
b) Intermediate goods the 16th-17th century India was
c) Consumer durables a) Headman of the panchayat
d) Capital goods b) Tax collection officer
c) Adviser to the King
d) Local police head
83. The difference between
Gross Domestic Product (GDP) 86.
and Gross National Product Cash Reserve Ratio (CRR) as a
(GNP) is part of monetary policy
a) Depreciation instruments is used to control
b) Subsidies 1. Inflation
c) Indirect and Direct Taxes 2. Fiscal deficit
d) Net Factor Income from 3. Foreign Direct Investment
abroad (FDI)

codes below.
84. Ain-i Akbari written by
Abu’l Fazl deals with records of a) 1 and 2 only
administrative arrangements b) 2 and 3 only
made for c) 1 only
d) 1, 2 and 3

b) International speculation in
major currencies
c) Depletion of foreign exchange
about land revenue collection in
reserves
Mughal India.
d) Capital outflow abroad
1. Land revenue was imposed
relative to inflow at home
without assessing the land.
2. Payment was accepted only in
kind, not in cash.
Which of the above is/are correct? were the main features of the
Mansabdari system?
a) 1 only
1. The king himself appointed
b) 2 only
the mansabdars
c) Both 1 and 2
2. A mansabdar could be asked
d) None
to give only military
assistance.
3. The mansabdari system was
88. The official Amin in hereditary.
Mughal India was responsible for
a) Ensuring that imperial Select the correct answer using the
regulations were carried out in codes below.
the provinces
a) 1 only
b) Ensuring external security and
b) 1 and 2 only
diplomatic negotiations for
c) 3 only
peace
d) 1 and 3 only
c) Supervising the work of all
welfare departments at the
Centre
91.In India, coins are issued by the
d) Extracting dues from
a) Government of India
defaulters
b) Reserve Bank of India
c) Foreign Exchange
Management Authority
89. The real exchange rate
(FEMA)
measures
d) State Governments
a) Prices abroad relative to those
at home

92. Under sulh-i kul Select the correct answer using the
introduced by Akbar codes below.
1. Religion was placed above the
a) 1 and 2 only
authority of the state.
b) 2 only
2. State did not arbitrarily
c) 1 and 3 only
discriminate between
d) 1, 2 and 3
religions.

a) 1 only
indices best reflects the
b) 2 only
international competitiveness of
c) Both 1 and 2
a nation’s goods?
d) None
a) Real Effective Exchange Rate
(NEER)
93. The convergence theory
b) Nominal Exchange Rate
states that all industrial systems,
(NER)
whether capitalist or communist,
c) Consistent Balance of
would converge in their social,
Payments (BoP) Surplus
political and economic systems
d) Annual short-term capital
because of the determinant
Inflows
effects of
a) Technology
b) Human evolution
c) Natural laws 96. Conversion of multi-crop
d) Administrative systems lands to monoculture lands can
be harmful to agriculture because
1. It depletes soil nutrients
severely leaving soil weak for
94. Why higher GDP does not
any healthy plant growth.
necessarily imply higher welfare
2. It increases the susceptibility
for a nation?
of farm to pests.
1. It may not be uniformly
distributed. Which of the above is/are correct?
2. It does not include the
spending by the unorganized a) 1 only
sector. b) 2 only
3. It does not capture extent of c) Both 1 and 2
environmental degradation. d) None

99. Lichens are not likely to be
found in
97. How can the government
1. Cold regions
finance spending excess of
2. Tree barks
revenue receipts?
3. Sites with heavy air pollution
1. Borrowing from markets
due to sulphur dioxide
2. Borrowing from foreign
nations Select the correct answer using the
3. Requesting grants from codes below.
international bodies
a) 1 and 3 only
Select the correct answer using the b) 1 and 2 only
codes below. c) 3 only
d) They can be found at all these
a) 1 and 2 only
places.
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3
100. In an economy, the
situation of ‘Liquidity Trap’
happens when
98. A Central Public Sector
a) All commercial banks fail
Enterprise cannot attain
b) Interest rates are too low
Maharatna status if
c) External economy is highly
1. It is not listed on the stock
volatile
exchange.
d) Interest rates are too high
2. Its operations are limited to
India.
a) 1 only
b) 2 only
c) Both 1 and 2
d) None

Test 11

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Prelims Test Series 2016 – Test 11

Which of the above is/are correct?

Justification: Statement 1: Suppose money is ideally sitting in an

The concept is called velocity of money.

Statement 2: Even if circulation of money becomes the same, how much

Q Source: Improvisation: Page 10: Chapter 2: 12th Macroeconomics

2. As per Classical Economic thought, if the buyers and sellers in each

a) Market will inevitably fail.

Justification: Classical thought is also known as the non-

As per them, markets function best without government interference. So,

Similarly, (c) will also be wrong.

Classical economists observe that markets generally regulate themselves,

Learning: In contrast to classical economics, Keynesian economics

Q Source: Page 5: Chapter 1: 12th Macroeconomics NCERT

3. Which of the following statements is correct about how Francois

Learning: François Bernier, a Frenchman, was a doctor, political

Bernier often travelled with the army.

In virtually every instance Bernier described what he saw in India as a

Q Source: Page 122: Chapter 5: Themes in Indian History – II: 12th

Which of the above is/are correct?

Justification: When trade happens without barriers, market forces

People would import only the cheapest commodities (assuming quality is

Gradually all nations will export the commodities of their comparative

Q Source: Page 82: Chapter 6: 12th Macroeconomics NCERT

5. GDP deflator is a measure of

Justification: It is the ratio of the value of goods and services an

This ratio basically shows to what extent an increase in GDP or gross

Option (b): While level of inflation in an economy may show its

Q Source: Page 28: Chapter 2: 12th Macroeconomics NCERT

6. A country will necessarily be economically developed if

Which of the above is/are correct?

Justification: Statement 1: The resource rich Africa and Latin America

The economic wealth, or well-being, of a country thus does not

So, 1 will be incorrect.

Statement 2: It is called as demographic dividend, but its fruition

Q Source: Page 10: Chapter 2: 12th Macroeconomics NCERT

7. Lingayats do not practise funerary rites prescribed in the

Justification: Lingayats believe that on death the devotee will be

Learning: The twelfth century witnessed the emergence of a new

Q Source: Page 147: Chapter 6: Themes in Indian History – II: 12th

8. An economy generally sacrifices consumption goods in order to

Which of the above is/are correct?

Justification: Statement 1 & 2: Capital goods are tools, implements

Since resources are limited in an economy, they can either be

If they are channelized for immediate consumption (i.e. say we are

If however, a balance is maintained by sacrificing some consumption

Q Source: Page 11-12: Chapter 2: 12th Macroeconomics NCERT

9. Why RBI is called as the ‘lender of last resort’?

Learning: The total amount of deposits held by all commercial banks in

This system of guarantee assures individual account-holders that their

Q Source: Page 45: Chapter 3: 12th Macroeconomics NCERT

10. Which of the following reduce accumulation of capital stock

Which of the above is/are correct?

Justification: Statement 1: Depreciation is the gradual decrease in the

It can happen either by physical depreciation like wear and tear or

Statement 2: Capital stock is anything that adds to the productive

Q Source: Page 11: Chapter 2: 12th Macroeconomics NCERT

Learning: Some of Kabir’s poems are known as ulatbansi (upside-down

These hint at the difficulties of capturing the nature of the Ultimate

Q Source: Page 161: Chapter 6: Themes in Indian History – II: 12th

12.The term ‘Base Effect’ is often used while discussing inflationary

Q Source: Often appears in Business news and Economic Surveys