21 October 2023

Q1. Which of the following are correctly matched:

1. Repo rate : Rate at which RBI lends money to commercial banks
2. Marginal standing facility :  aid banks in adjusting the day to day mismatches in liquidity
3. Bank rate : Rate at which RBI buys or rediscounts bills of exchange
4. Liquidity Adjustment Facility: Under which scheduled commercial banks can borrow additional money

Select the correct answer using the code given below:

1. 1 and 3 only
2. 1, 2 and 4 only
3. 2, 3 and 4 only
4. 1, 2, 3 and 4

Explanation:

The repo rate is rate at which RBI lends money to commercial banks.

The reverse repo rate is rate at which RBI borrows money from commercial banks.

The marginal standing facility rate – under which scheduled commercial banks can borrow additional money Bank rate – rate at which RBI buys or rediscounts bills of exchange.

LAF is a facility extended by the Reserve Bank of India to the scheduled commercial banks (excluding RRBs) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against the collateral of Government securities including State Government securities. Basically LAF enables liquidity management on a day to day basis. Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements or repos. LAF is used to aid banks in adjusting the day to day mismatches in liquidity (frictional liquidity deficit/surplus).

Marginal Standing Facility (MSF) is a new scheme announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window. MSF, being a penal rate, is always fixed above the repo rate.

Q2. Consider the following statements:

1. Production activity is organised by combining land, labour, physical capital and human capital, which are known as factors of production.
2. Tools, machines, buildings and raw materials are called fixed capital.

Select the correct answer using the code given below:

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Explanation:

Every production is organised by combining land, labour, physical capital and human capital, which are known as factors of production.

Physical capital can be grouped into two categories

(a) Tools, machines, buildings: Tools and machines range from very simple tools such as a farmer’s plough to sophisticated machines such as generators, turbines, computers, etc. Tools, machines, buildings can be used in production over many years, and are called fixed capital.

(b) Raw materials and money in hand: Production requires a variety of raw materials such as the yarn used by the weaver and the clay used by the potter. Also, some money is always required during production to make payments and buy other necessary items. Raw materials and money in hand are called working capital. Unlike tools, machines and buildings, these are used up in production.

Q3. Consider the following statements:

1. Rural areas in India suffer from seasonal and disguised unemployment while Urban areas have mostly educated unemployment.
2. Unemployment tends to increase economic overload.
3. Small scale manufacturing is the most labour absorbing sector of economy.
4. In the primary sector employment structure is characterised by self-employment .

Select the correct answer using the code given below:

1. 1, 2 and 3 only
2. 1, 2 and 4 only
3. 1, 3 and 4 only
4. 2, 3 and 4 only

Explanation:

In case of India we have unemployment in rural and urban areas. However, the nature of the unemployed differs in rural and urban areas. In case of rural areas, there is seasonal and disguised unemployment. Urban areas have mostly educated unemployment.

Unemployment leads to wastage of manpower resource. People who are an asset for the economy turn into a liability.

Moreover, the employment structure is characterised by self-employment in the primary sector.

Agriculture, is the most labour absorbing sector of the economy. In recent years, there has been a decline in the dependence of population on agriculture partly because of disguised unemployment discussed earlier. Some of the surplus labour in agriculture has moved to either the secondary or the tertiary sector. In the secondary sector, small scale manufacturing is the most labour absorbing. Hence statement 3 is wrong.

Q4. Which of the following helps in converting population into Human Capital:

1. Mid Day Meal
2. National Rural Health Mission
3. Sarva Shiksha Abhiyan
4. Pradhan Mantri Kaushal Vikas Yojana
5. Swachh Bharat Mission

Select the correct answer using the code given below:

1. 1, 2, 3 and 4 only
2. 2 and 5 only
3. 1, 3, 4 and 5 only
4. 1, 2, 3, 4 and 5

Explanation:

The chapter ‘People as Resource’ is an effort to explain population as an asset for the economy rather than a liability. Population becomes human capital when there is investment made in the form of education, training and medical care. In fact, human capital is the stock of skill and productive knowledge embodied in them. All of the given schemes helps in improving health, education, skill development of population and hence are contributing in building human capital.

Q5. Which of the following are indicators of Poverty:

1. levels of income
2. illiteracy level
3. malnutrition
4. lack of job opportunities
5. access to safe drinking water

Select the correct answer using the code given below:

1. 1, 2, 3 and 4 only
2. 2 and 5 only
3. 1, 3, 4 and 5 only
4. 1, 2, 3, 4 and 5

Explanation:

Since poverty has many facets, social scientists look at it through a variety of indicators. Usually the indicators used relate to the levels of income and consumption. But now poverty is looked through other social indicators like illiteracy level, lack of general resistance due to malnutrition, lack of access to healthcare, lack of job opportunities, lack of access to safe drinking water, sanitation etc. Hence all of the factors are indicators of poverty.

Q6. Which of the following statements about Collateral are correct:

1. It is an asset owned by borrower
2. It is an liability owned by borrower
3. It is used as a guarantee to a lender until the loan is repaid
4. It is used as a guarantee to a borrower until the loan is repaid
5. If the lender fails to repay the loan, the borrower has the right to sell the collateral to obtain payment

Select the correct answer using the code given below:

1. 1 and 3 only
2. 2 and 4 only
3. 1, 3 and 5 only
4. 2, 4 and 5 only

Explanation:

Every loan agreement specifies an interest rate which the borrower must pay to the lender along with the repayment of the principal. In addition, lenders may demand collateral (security) against loans. Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment. Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing.

Hence only 1 and 3 is correct. Answer is A

Q7. Which of the following is caused due to foreign trade:

1. Choice of goods in the markets rises
2. Prices of similar goods in the two markets tend to become equal
3. Competition between producers in different countries
4. Loss to domestic producers

Select the correct answer using the code given below:

1. 1, 2 and 3 only
2. 1, 2 and 4 only
3. 1, 3 and 4 only
4. 2, 3 and 4 only

Explanation:

In general, with the opening of trade, goods travel from one market to another. Choice of goods in the markets rises. Prices of similar goods in the two markets tend to become equal. And, producers in the two countries now closely compete against each other even though they are separated by thousands of miles! Foreign trade thus results in connecting the markets or integration of markets in different countries. Hence 1, 2 and 3 are correct. Statement 4 is not correct as Loss is caused to domestic producers if they are not able to compete. If the domestic producer is able to produce at competitive prices it will not face loss.

Q8. Which of the following are examples of trade barrier:

1. Import Duties.
2. Anti-Dumping Duties.
3. Quotas & Licensing.
4. Foreign Exchange Restriction.
5. Local Content Requirement.

Select the correct answer using the code given below:

1. 1, 2, 3 and 4 only
2. 2 and 5 only
3. 1, 3, 4 and 5 only
4. 1, 2, 3, 4 and 5

Explanation:

All of the given options are trade barriers.

Q9. Globalisation leads to movement of :

1. Goods, services and people
2. Goods, services, technology and people
3. Goods, services, investments and technology
4. Goods, services, investments, technology and people

Explanation:

Globalisation is this process of rapid integration or interconnection between countries. Besides the movements of goods, services, investments and  technology, there is one more way in which the countries can be connected. This is through the movement of people between countries. People usually move from one country to another in search of better income, better jobs or better education. Answer is D.

Q10. Which of the following is/are a money market instrument in India?

1. Certificate of deposits
2. Commercial bill
3. Government securities

Select the correct answer using the code given below.

1. 1 and 2 only 
2. 1 only
3. 2 and 3 only
4. 1, 2 and 3

Explanation:

Money market can be defined as market for short term funds with maturities ranging from overnight to one year and include financial instruments that are considered to be close substitutes of money. All given above are money market instrument except Government securities (G-sec), which is capital market instrument in India.

Treasury bill: These are short term money market instruments, which are issued by the RBI on behalf of the GOI.Certificate of Deposits (CD): After Treasury bill it is lowest risk category investment option issued by Scheduled commercial banks and FIs.Commercial bill: Bills of exchange are negotiable instruments drawn by the seller (drawer) of the goods on the buyer (drawee) of the goods for the value of the goods delivered. These bills are called trade bills.