Daily Quiz: January 9, 2018
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- Question 1 of 7
1. Question
1 pointsCategory: EconomyWhich of the following statement(s) is/are not true regarding the difference between Balance of Payments and Balance of Trade?
1. ‘Balance of Payments’ represents a country’s economic transactions with the rest of the world and the ‘Balance of Trade’ represents total internal trade.
2. Balance of Trade accounts the visible items only whereas Balance of Payments accounts the exchange of both visible and invisibles.
Choose the correct answer from the codes given below:
Correct
Statement 1 is incorrect. Balance of payments is the overall record of all economic transactions of a country with the rest of the world. The balance of trade (a.k.a. current account) is included in the balance of payments.
Statement 2 is correct. Balance of trade is the difference in the value of exports and imports of only visible items. Balance of trade includes imports and exports of goods alone i.e., visible items.
Incorrect
Statement 1 is incorrect. Balance of payments is the overall record of all economic transactions of a country with the rest of the world. The balance of trade (a.k.a. current account) is included in the balance of payments.
Statement 2 is correct. Balance of trade is the difference in the value of exports and imports of only visible items. Balance of trade includes imports and exports of goods alone i.e., visible items.
- Question 2 of 7
2. Question
1 pointsCategory: EconomyWhich of the following statement(s) is/are correct regarding the Capital and Current account convertibility?
1. Capital Account convertibility refers trade -related payments and remittance of goods and services.
2. Current account convertibility deals with creation of assets by other countries in local markets.
3. Capital Account Convertibility can increase the Foreign Direct Investments and it is a major feature of developed economy.
Choose the correct answer from the codes given below:
Correct
Statement 1 is incorrect Capital Account convertibility means the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It refers to the removal of restraints on international flows on a country’s capital account, enabling full currency convertibility and opening of the financial system.
Statement 3 is correct. Capital account convertibility is considered to be one of the major features of a developed economy. It helps attract foreign investment.
Statement 2 is incorrect. Current account convertibility allows residents to make and receive trade-related payments — receive dollars (or any other foreign currency) for export of goods and services and pay dollars for import of goods and services, make sundry remittances, access foreign currency for travel, studies abroad, medical treatment and gifts, etc.
Incorrect
Statement 1 is incorrect Capital Account convertibility means the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It refers to the removal of restraints on international flows on a country’s capital account, enabling full currency convertibility and opening of the financial system.
Statement 3 is correct. Capital account convertibility is considered to be one of the major features of a developed economy. It helps attract foreign investment.
Statement 2 is incorrect. Current account convertibility allows residents to make and receive trade-related payments — receive dollars (or any other foreign currency) for export of goods and services and pay dollars for import of goods and services, make sundry remittances, access foreign currency for travel, studies abroad, medical treatment and gifts, etc.
- Question 3 of 7
3. Question
1 pointsCategory: EconomyWhich of the following developments can occur in an economy due to deficit financing by the government?
- Rise in Inflation
- Decrease in public debt
- Increase in money supply
- Improvement in capital formation
Select the correct answer using the code given below.
Correct
A deficit means one is spending beyond means. Deficit financing can be done by external aids, grants, borrowings and printing money. All these means will lead to extra supply of money in the economy, which will have the risk of inducing inflation. Deficit financed by borrowings will result into increase in public debt. That is why it is healthy for an economy to keep a low fiscal deficit.
The technique of deficit financing may be used to promote economic development in several ways. Economic development largely depends on capital formation. The basic source of capital formation is savings. But, LDCs are characterized by low saving-income ratio. In these low-saving countries, deficit finance- led inflation becomes an important source of capital accumulation.
Incorrect
A deficit means one is spending beyond means. Deficit financing can be done by external aids, grants, borrowings and printing money. All these means will lead to extra supply of money in the economy, which will have the risk of inducing inflation. Deficit financed by borrowings will result into increase in public debt. That is why it is healthy for an economy to keep a low fiscal deficit.
The technique of deficit financing may be used to promote economic development in several ways. Economic development largely depends on capital formation. The basic source of capital formation is savings. But, LDCs are characterized by low saving-income ratio. In these low-saving countries, deficit finance- led inflation becomes an important source of capital accumulation.
- Question 4 of 7
4. Question
1 pointsCategory: EconomyWhich of the following statement(s) is/are correct regarding the Lorenz curve?
1. The Lorenz curve shows the percentage of total income earned by cumulative percentage of the population.
2. The Gini Coefficient derived from the Lorenz Curve measures the degree of income equality in a population.
3. A Gini Coefficient of zero means that everyone has the same income, while a Coefficient of 1 represent a single individual receiving all the income.
Choose the correct answer from the codes given below:
Correct
All the above statements are correct.
The Lorenz curve shows the percentage of total income earned by cumulative percentage of the population.
The Gini Coefficient, which is derived from the Lorenz Curve, can be used as an indicator of economic development in a country. The Gini Coefficient measures the degree of income equality in a population. The Gini Coefficient can vary from 0 (perfect equality) to 1 (perfect inequality). A Gini Coefficient of zero means that everyone has the same income, while a Coefficient of 1 represent a single individual receiving all the income.
Incorrect
All the above statements are correct.
The Lorenz curve shows the percentage of total income earned by cumulative percentage of the population.
The Gini Coefficient, which is derived from the Lorenz Curve, can be used as an indicator of economic development in a country. The Gini Coefficient measures the degree of income equality in a population. The Gini Coefficient can vary from 0 (perfect equality) to 1 (perfect inequality). A Gini Coefficient of zero means that everyone has the same income, while a Coefficient of 1 represent a single individual receiving all the income.
- Question 5 of 7
5. Question
1 pointsCategory: EconomyConsider the following statements regarding Ways and Means Advances(WMA):
1. RBI makes WMA to the state governments for a period of 90 Days.
2. WMA against the collateral Government securities is called Special WMA.
3. RBI provides Ways and Means Advances (WMA) to the States to create more liquidity in the economy.
Which of the statement(s) given above is/are correct?
Correct
Statement 1 is correct. RBI makes WMA to the state governments for a period of 90 Days.
Statement 2 is correct. If the state government take WMA against the collateral Government securities, it is called Special WMA.
Statement 3 is incorrect. At times, when there is a temporary mismatch in the cash flow of the receipts and payments of the State Governments, RBI provides Ways and Means Advances.
Incorrect
Statement 1 is correct. RBI makes WMA to the state governments for a period of 90 Days.
Statement 2 is correct. If the state government take WMA against the collateral Government securities, it is called Special WMA.
Statement 3 is incorrect. At times, when there is a temporary mismatch in the cash flow of the receipts and payments of the State Governments, RBI provides Ways and Means Advances.
- Question 6 of 7
6. Question
1 pointsCategory: EconomyWith reference to Indian economy, consider the following:
1. Tax revenue
2. Non-tax revenue
3. Recoveries of loans
4. Borrowing and other liabilities
Which of the above is/are component/components of revenue receipts?
Correct
Government receipts which neither create liabilities nor reduce assets are called revenue receipts. Revenue receipts are arranged into two categories, namely Tax revenue and Non-tax revenue.
A receipt is a revenue receipt, if it satisfies the following two essential conditions: (i) The receipt must not create a liability for the government. For example, taxes levied by the government are revenue receipts as they do not create any liability. However, any amount, borrowed by the government, is not a revenue receipt as it causes an increase in the liability in terms of repayment of borrowings. (ii) The receipt must not cause decrease in the assets. For example, a receipt from sale of shares of a public enterprise is not a revenue receipt as it leads to a reduction in assets of the government. The following figure mentions the different types of receipts.
Incorrect
Government receipts which neither create liabilities nor reduce assets are called revenue receipts. Revenue receipts are arranged into two categories, namely Tax revenue and Non-tax revenue.
A receipt is a revenue receipt, if it satisfies the following two essential conditions: (i) The receipt must not create a liability for the government. For example, taxes levied by the government are revenue receipts as they do not create any liability. However, any amount, borrowed by the government, is not a revenue receipt as it causes an increase in the liability in terms of repayment of borrowings. (ii) The receipt must not cause decrease in the assets. For example, a receipt from sale of shares of a public enterprise is not a revenue receipt as it leads to a reduction in assets of the government. The following figure mentions the different types of receipts.
- Question 7 of 7
7. Question
1 pointsCategory: EconomyWith reference to REER and NEER in economy, consider the following:
1. Nominal Effective Exchange Rate (NEER) is the weighted average of bilateral nominal exchange rates of the rupee in terms of foreign currencies.
2. Real Effective Exchange Rate (REER) is the weighted average of nominal exchange rates, adjusted for inflation.
Which of the statement(s) given above is/are correct?
Correct
Both the statements are correct. Nominal Effective Exchange Rate (NEER) is the weighted average of bilateral nominal exchange rates of the rupee in terms of foreign currencies. It is simple and direct for example:- one US Dollar as per NEER will be say 66 rupees.
Where as Real Effective Exchange Rate (REER)is the weighted average of nominal exchange rates, adjusted for inflation.
The indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are used as indicators of external competitiveness by RBI.
Incorrect
Both the statements are correct. Nominal Effective Exchange Rate (NEER) is the weighted average of bilateral nominal exchange rates of the rupee in terms of foreign currencies. It is simple and direct for example:- one US Dollar as per NEER will be say 66 rupees.
Where as Real Effective Exchange Rate (REER)is the weighted average of nominal exchange rates, adjusted for inflation.
The indices of Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are used as indicators of external competitiveness by RBI.
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