Daily Static MCQs for UPSC & State PSC Exams - Economy (31 August 2023)

   

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

Subject : Economy

1. Which of the following is/are consists of current account of balance of payments?

1. Exports
2. Interest Payments
3. Transfers

Select the correct answer from the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: (D)

Explanation: In the external sector, it refers to the account maintained by every government of the world in which every kind of current transactions is shown—basically this account is maintained by the central banking body of the economy on behalf of the government. Current transactions of an economy in foreign currency all over the world are—export, import, interest payments, private remittances and transfers. Hence, all are correct.

2. Which of the following institution is known as private arm of the World Bank?

(a) International Development Agency
(b) International Finance Corporation
(c) Multilateral Investment Guarantee Agency
(d) International Bank for Reconstruction and Development

Answer: (B)

Explanation: The International Finance Corporation (IFC) was set up in 1956 which is also known as the private arm of the WB. It lends money to private sector companies of its member nations.

3. Consider the following statements regarding reverse repo rate:

1. It is the rate of interest the RBI pays to its clients who offer short-term loan to it.
2. It is reverse of the repo rate and this was started in November 2006 as part of liquidity Adjustment Facility (LAF) by the RBI.
3. In practice, financial institutions operating in India park their surplus funds with the RBI for short term period and earn money.

How many of the above statements is/are correct?

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

Answer: (B)

Explanation: It is the rate of interest the RBI pays to its clients who offer short-term loan to it. It is reverse of the repo rate and this was started in November 1996 as part of liquidity Adjustment Facility (LAF) by the RBI. In practice, financial institutions operating in India park their surplus funds with the RBI for short term period and earn money. It has a direct bearing on the interest rates charged by the banks and the financial institutions on their different forms of loans. Hence, statement 2 is incorrect.

4. How would you distinguish between the revenue and capital receipts of the government?

1. Revenue receipts are non-redeemable unlike certain capital receipts.
2. Capital receipts are always debt creating unlike revenue receipts.

Which of the above statements is/are correct?

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

Answer: (A)

Explanation: The main difference between revenue receipts and capital receipts is that in the case of revenue receipts, government is under no future obligation to return the amount, i.e., they are non-redeemable. But in case of capital receipts which are borrowings, government is under obligation to return the amount along with Interest. Capital receipts may be debt creating or non-debt creating. Examples of debt creating receipts are—Net borrowing by government at home, loans received from foreign governments, borrowing from RBI. Examples of non-debt capital receipts are—Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment), etc. These do not give rise to debt. Hence, statement 2 is incorrect.

5. Which of the following statements about Monetary Policy Framework Agreement is correct?

(a) It is an agreement between Government and Reserve Bank of India (RBI) on the maximum tolerable inflation rate that RBI should target to achieve price stability.
(b) It is an agreement between Banks and Reserve Bank of India (RBI) to ensure that the changes in the Interest rates are passed on to the customers.
(c) It is an agreement between Government and Reserve Bank of India (RBI) on the minimum inflation rate that RBI should target to achieve growth.
(d) None of the above

Answer: (A)

Explanation: Monetary Policy Framework Agreement is an agreement reached between Government and the central bank in India – The Reserve Bank of India (RBI) – on the maximum tolerable inflation rate that RBI should target to achieve price stability. The Reserve Bank of India and Government of India signed the Monetary Policy Framework Agreement on 20 February 2015 which made inflation targeting and achieving price stability the responsibilities of RBI. Subsequently, the government, while unveiling the Union Budget for 2016-17 in the Parliament, proposed to amend the Reserve Bank of India (RBI) Act, 1934 for giving a statutory backing to the aforementioned Monetary Policy Framework Agreement and for setting up a Monetary Policy Committee (MPC). Hence, option (a) is correct.