-by Pre Empower Oct 14 : Daily Quiz for Civil Services Prelims Examination
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Welcome to Pre Empower, your daily destination for mastering multiple-choice questions (MCQs) framed for Civil Services Examinations. Each day, we present a diverse set of carefully crafted MCQs to enhance your knowledge, boost your confidence, and prepare you for success in your civil services examinations of UPSC CSE and other State PCS like APSC, BPSC, UPPCS and others.
Questions have been designed as per the demands of examination that cover a wide range of topics, including General Studies, Current Affairs, and Aptitude for CSAT. With Pre Empower, you’ll not only test your understanding but also develop critical thinking skills essential for tackling the challenges of the Preliminary exam in the best possible manner.
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Question 1 of 5
1. Question
Which of the following correctly explains the term ‘Base Effect’ in the context of inflation measurement?
(i) It is the impact of the previous year’s inflation rate on the calculation of the current inflation rate.
(ii) It refers to the difference between wholesale and consumer price inflation indices.
(iii) It denotes the reduction in inflation rate when the base year has a high inflation rate.
(iv) It describes the long-term average inflation rate used as a benchmark for policy decisions.
Select the correct answer using the codes given below:Correct
Answer: Option (A) (i) and (iii) only
Explanation:
Statement (i) is correct. The base effect refers to the impact of the previous year’s inflation rate on the calculation of the current inflation rate. If the base year (previous year) had unusually high or low inflation, it will distort the current year’s inflation figures when making a year-on-year comparison.
Statement (iii) is also correct. When the base year had a high inflation rate, the current inflation rate may appear lower even if prices continue to rise because the starting point (base) was high. Conversely, if the base year had a low inflation rate, the current inflation could appear higher.
Statement (ii) is incorrect as it confuses the base effect with the differences in price indices, such as the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).
Statement (iv) is unrelated to the base effect and instead describes a benchmark used in monetary policy, which is not relevant to the definition of the base effect.Incorrect
Answer: Option (A) (i) and (iii) only
Explanation:
Statement (i) is correct. The base effect refers to the impact of the previous year’s inflation rate on the calculation of the current inflation rate. If the base year (previous year) had unusually high or low inflation, it will distort the current year’s inflation figures when making a year-on-year comparison.
Statement (iii) is also correct. When the base year had a high inflation rate, the current inflation rate may appear lower even if prices continue to rise because the starting point (base) was high. Conversely, if the base year had a low inflation rate, the current inflation could appear higher.
Statement (ii) is incorrect as it confuses the base effect with the differences in price indices, such as the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).
Statement (iv) is unrelated to the base effect and instead describes a benchmark used in monetary policy, which is not relevant to the definition of the base effect. -
Question 2 of 5
2. Question
Which of the following is the main source of revenue for the Union Government in India?
Correct
Answer: Option (B) Goods and Services Tax (GST)
Explanation:
The Goods and Services Tax (GST), implemented in India in July 2017, is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services. It has replaced several earlier indirect taxes like VAT, excise duties, and service tax.
GST has become the largest source of revenue for the Indian government because it unifies various taxes and is applied throughout the supply chain, from manufacturers to consumers. The tax base under GST is broad, ensuring a steady flow of revenue.
While corporate tax and income tax are also significant sources of revenue, they do not match the magnitude of GST collections, as GST encompasses a wider range of economic activities and a broader tax base.
Excise duties, previously a major revenue source, have declined significantly after the introduction of GST and are now limited mainly to petroleum products and alcohol, which are outside the GST framework.Incorrect
Answer: Option (B) Goods and Services Tax (GST)
Explanation:
The Goods and Services Tax (GST), implemented in India in July 2017, is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services. It has replaced several earlier indirect taxes like VAT, excise duties, and service tax.
GST has become the largest source of revenue for the Indian government because it unifies various taxes and is applied throughout the supply chain, from manufacturers to consumers. The tax base under GST is broad, ensuring a steady flow of revenue.
While corporate tax and income tax are also significant sources of revenue, they do not match the magnitude of GST collections, as GST encompasses a wider range of economic activities and a broader tax base.
Excise duties, previously a major revenue source, have declined significantly after the introduction of GST and are now limited mainly to petroleum products and alcohol, which are outside the GST framework. -
Question 3 of 5
3. Question
In the context of India’s Balance of Payments (BoP), which of the following components is included under the Current Account?
(i) Net exports of goods and services
(ii) Net primary income (e.g., income from investments and wages)
(iii) Net capital transfers
(iv) Net secondary income (e.g., remittances and gifts)
Select the correct answer using the codes given below:Correct
Answer: Option (A) (i), (ii), and (iv) only
Explanation:
The Current Account in the Balance of Payments (BoP) includes net exports of goods and services (exports minus imports), net primary income (like earnings from foreign investments and labor income), and net secondary income (such as remittances, foreign aid, and personal transfers).
Statement (i) is correct as it refers to trade in goods and services, a major component of the Current Account.
Statement (ii) is also correct as it includes income from foreign assets and compensation of employees abroad.
Statement (iv) is correct because net secondary income accounts for unilateral transfers like remittances, which are crucial for India’s current account balance.
Statement (iii) is incorrect because net capital transfers belong to the Capital Account, not the Current Account. The capital account records financial flows like foreign direct investment (FDI) and portfolio investments, not income or remittances.Incorrect
Answer: Option (A) (i), (ii), and (iv) only
Explanation:
The Current Account in the Balance of Payments (BoP) includes net exports of goods and services (exports minus imports), net primary income (like earnings from foreign investments and labor income), and net secondary income (such as remittances, foreign aid, and personal transfers).
Statement (i) is correct as it refers to trade in goods and services, a major component of the Current Account.
Statement (ii) is also correct as it includes income from foreign assets and compensation of employees abroad.
Statement (iv) is correct because net secondary income accounts for unilateral transfers like remittances, which are crucial for India’s current account balance.
Statement (iii) is incorrect because net capital transfers belong to the Capital Account, not the Current Account. The capital account records financial flows like foreign direct investment (FDI) and portfolio investments, not income or remittances. -
Question 4 of 5
4. Question
Which of the following best describes the ‘Phillips Curve’ in economics?
Correct
Answer: Option (A) It shows the inverse relationship between inflation and unemployment in the short run.
Explanation:
The Phillips Curve, developed by A.W. Phillips, illustrates the inverse relationship between inflation and unemployment in the short run. According to this economic theory, when inflation is high, unemployment tends to be low, and when inflation is low, unemployment tends to rise. This is because higher inflation often coincides with increased demand for goods and services, leading to greater demand for labor.
However, the long-term validity of the Phillips Curve has been debated, especially in the context of stagflation (simultaneous high inflation and unemployment) observed in the 1970s.
Option (B) refers to the concept of sustainable development, not the Phillips Curve.
Option (C) relates to the Marshall-Lerner condition and exchange rate economics, not the Phillips Curve.
Option (D) describes the Laffer Curve, which shows the relationship between tax rates and revenue, not inflation and unemployment.Incorrect
Answer: Option (A) It shows the inverse relationship between inflation and unemployment in the short run.
Explanation:
The Phillips Curve, developed by A.W. Phillips, illustrates the inverse relationship between inflation and unemployment in the short run. According to this economic theory, when inflation is high, unemployment tends to be low, and when inflation is low, unemployment tends to rise. This is because higher inflation often coincides with increased demand for goods and services, leading to greater demand for labor.
However, the long-term validity of the Phillips Curve has been debated, especially in the context of stagflation (simultaneous high inflation and unemployment) observed in the 1970s.
Option (B) refers to the concept of sustainable development, not the Phillips Curve.
Option (C) relates to the Marshall-Lerner condition and exchange rate economics, not the Phillips Curve.
Option (D) describes the Laffer Curve, which shows the relationship between tax rates and revenue, not inflation and unemployment. -
Question 5 of 5
5. Question
The Reserve Bank of India (RBI) uses various monetary policy tools to manage liquidity in the economy. Which of the following tools directly influences the money supply?
(i) Repo Rate
(ii) Open Market Operations (OMO)
(iii) Cash Reserve Ratio (CRR)
(iv) Statutory Liquidity Ratio (SLR)
Select the correct answer using the codes given below:Correct
Answer: Option (D) (i), (ii), (iii), and (iv)
Explanation:
The RBI employs various tools to regulate the money supply and control inflation:
Repo Rate (i): This is the rate at which the RBI lends money to commercial banks. By adjusting the repo rate, the RBI influences borrowing costs for banks, which, in turn, affects the money supply. A lower repo rate increases the money supply, while a higher rate decreases it.
Open Market Operations (OMO) (ii): These involve the buying and selling of government securities in the open market. When the RBI buys securities, it injects liquidity into the system, increasing the money supply. When it sells securities, it absorbs liquidity, reducing the money supply.
Cash Reserve Ratio (CRR) (iii): This is the percentage of a bank’s total deposits that must be kept with the RBI. By increasing the CRR, the RBI reduces the amount of money banks can lend, thereby decreasing the money supply. A lower CRR increases the money supply.
Statutory Liquidity Ratio (SLR) (iv): This is the minimum percentage of deposits that banks must maintain in the form of gold, cash, or government securities before offering credit to customers. Adjusting the SLR impacts the lending capacity of banks, thereby influencing the money supply.All these tools (i, ii, iii, and iv) are integral components of monetary policy used by the RBI to manage liquidity and stabilize the economy.
Incorrect
Answer: Option (D) (i), (ii), (iii), and (iv)
Explanation:
The RBI employs various tools to regulate the money supply and control inflation:
Repo Rate (i): This is the rate at which the RBI lends money to commercial banks. By adjusting the repo rate, the RBI influences borrowing costs for banks, which, in turn, affects the money supply. A lower repo rate increases the money supply, while a higher rate decreases it.
Open Market Operations (OMO) (ii): These involve the buying and selling of government securities in the open market. When the RBI buys securities, it injects liquidity into the system, increasing the money supply. When it sells securities, it absorbs liquidity, reducing the money supply.
Cash Reserve Ratio (CRR) (iii): This is the percentage of a bank’s total deposits that must be kept with the RBI. By increasing the CRR, the RBI reduces the amount of money banks can lend, thereby decreasing the money supply. A lower CRR increases the money supply.
Statutory Liquidity Ratio (SLR) (iv): This is the minimum percentage of deposits that banks must maintain in the form of gold, cash, or government securities before offering credit to customers. Adjusting the SLR impacts the lending capacity of banks, thereby influencing the money supply.All these tools (i, ii, iii, and iv) are integral components of monetary policy used by the RBI to manage liquidity and stabilize the economy.
