Daily Static Quiz (Economy) December 19, 2025

Daily Static Quiz (Economy) December 19, 2025

Question 1

A country experiences a situation where its per capita income continues to increase, but employment rates stagnate and poverty levels remain unchanged. Which of the following best describes this economic phenomenon?

(a) Inclusive growth resulting from equitable distribution of resources

(b) Jobless growth or growth without employment generation

(c) Stagflation indicating simultaneous inflation and economic stagnation

(d) Deflation accompanied by economic expansion

Question 2

Consider the following statements regarding the Reserve Bank of India’s (RBI) use of monetary policy instruments:

1. Increasing the Statutory Liquidity Ratio (SLR) decreases the money supply in the economy
2. Reducing the Cash Reserve Ratio (CRR) increases the money multiplier effect
3. Open Market Operations (OMOs) involving sale of securities by RBI contracts money supply
4. Increasing repo rate encourages commercial banks to borrow more from RBI

Which of the above statements are correct?

(a) 1, 2, and 3 only

(b) 1 and 3 only

(c) 2 and 3 only

(d) All of the above

Question 3

In the context of India’s foreign exchange management, consider the following statements:

1. If the Indian rupee is appreciating rapidly against major currencies, the RBI may intervene by selling dollars in the forex market
2. A higher Current Account Deficit (CAD) necessitates larger inflows of capital to maintain foreign exchange reserves stability
3. External Commercial Borrowings (ECBs) by Indian firms increase the country’s external debt but provide immediate foreign exchange inflows

Which of the above statements are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) All of the above

Question 4

With reference to India’s fiscal policy framework, consider the following:

1. The Fiscal Responsibility and Budget Management (FRBM) Act mandates a specific target for the revenue deficit as a percentage of GDP
2. Government spending on infrastructure development is classified as capital expenditure
3. A budget deficit occurs when government revenue exceeds government expenditure
4. Disinvestment of public sector enterprises generates revenue for the government but does not affect the fiscal deficit in accounting terms

Which of the above statements are correct?

(a) 1 and 2 only

(b) 2 and 4 only

(c) 1, 2, and 4 only

(d) 2 and 3 only

Question 5

In the context of India’s trade deficit and balance of payments position, which of the following factors would most likely result in a widening Current Account Deficit (CAD)?

1. Increase in exports of merchandise goods
2. Increase in imports of petroleum and non-oil commodities
3. Increase in remittances from Indians working abroad
4. Increase in foreign direct investment in manufacturing sector

Which of the above factors would worsen the CAD?

(a) 1 and 2

(b) 2 only

(c) 2 and 4

(d) All of the above

Question 6

Consider the following statements regarding capital markets and foreign investment in India:

1. Foreign Portfolio Investment (FPI) is a direct and permanent form of investment in the productive assets of another country
2. Masala Bonds refer to rupee-denominated bonds issued outside India and purchased by foreign investors
3. The participation of foreign institutional investors in Indian stock markets can increase market volatility
4. Liberalization of foreign direct investment (FDI) norms in Multi-Brand Retail Trade has increased employment in the organized retail sector

Which of the above statements are correct?

(a) 2, 3, and 4 only

(b) 2 and 3 only

(c) 1 and 4 only

(d) 1, 2, and 3 only

Question 7

With reference to inflation and its measurement in India, consider the following:

1. The Consumer Price Index (CPI) measures inflation experienced by the common consumer across rural and urban areas
2. Demand-pull inflation occurs when aggregate demand exceeds aggregate supply at the prevailing price level
3. Stagflation is characterized by simultaneous occurrence of high inflation and high economic growth
4. The RBI’s target is to maintain retail inflation at 4% with a tolerance band of +/- 2%

Which of the above statements are correct?

(a) 1, 2, and 4 only

(b) 1, 2, and 3 only

(c) 2, 3, and 4 only

(d) All of the above

Question 8

Consider the following statements regarding the structure and sectors of the Indian economy:

1. The primary sector’s share in India’s GDP has increased substantially due to mechanization of agriculture
2. The secondary sector, which includes manufacturing and construction, is crucial for generating employment and achieving industrial development
3. The tertiary sector contributes the highest percentage to India’s GDP currently
4. The shift from primary to tertiary sector without a corresponding development of secondary sector indicates weak industrialization

Which of the above statements are correct?

(a) 2, 3, and 4 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) All of the above

Question 9

In the context of India’s economic development strategy, consider the following statements regarding the concept of “Atmanirbhar Bharat” (Self-Reliant India):

1. It primarily aims to restrict all forms of foreign direct investment into India
2. It emphasizes building a strong domestic supply chain and reducing import dependence
3. Production-Linked Incentive (PLI) schemes are part of the Atmanirbhar Bharat initiative
4. The strategy involves shifting focus entirely from export-oriented growth to domestic consumption-based growth

Which of the above statements are correct?

(a) 2 and 3 only

(b) 1, 2, and 4 only

(c) 1 and 4 only

(d) All of the above

Question 10

With reference to non-banking financial institutions and financial inclusion in India, consider the following:

1. Non-Banking Financial Companies (NBFCs) provide credit facilities but are not authorized to accept deposits from the public
2. Microfinance institutions (MFIs) primarily serve low-income households excluded from formal banking system
3. The Pradhan Mantri Jan Dhan Yojana (PMJDY) aims to provide universal access to banking services and financial literacy
4. Shadow banking entities face the same regulatory oversight as scheduled commercial banks under RBI’s supervision

Which of the above statements are correct?

(a) 1, 2, and 3 only

(b) 1 and 2 only

(c) 2 and 4 only

(d) All of the above

ANSWER KEY AND EXPLANATIONS

QUESTION 1: Answer (b)

Correct Answer: Jobless growth or growth without employment generation

Explanation:

The scenario described in the question represents “jobless growth,” a phenomenon where the economy experiences growth in per capita income and GDP, but fails to create sufficient employment opportunities. This economic condition emerged prominently in India during the early 2000s when GDP growth exceeded 7-8% annually, yet unemployment rates remained high and poverty reduction was slow.

Why other options are incorrect:

(a) Inclusive growth requires both economic expansion AND equitable distribution, reduction in poverty, and employment generation. The scenario does not fit this criterion since poverty levels remain unchanged.

(c) Stagflation describes simultaneous inflation and economic stagnation (negative growth), whereas the question mentions increasing per capita income, indicating economic growth.

(d) Deflation involves falling prices and typically accompanies economic contraction, not expansion.

Key Concept: Jobless growth occurs when productivity improvements and capital-intensive investments lead to economic growth without proportionate job creation. This is a significant development challenge for India.

QUESTION 2: Answer (c)

Correct Answer: Statements 2 and 3 only

Explanation:

Statement 1 is INCORRECT: When RBI increases the Statutory Liquidity Ratio (SLR), banks must hold a higher percentage of deposits in the form of liquid assets. However, this REDUCES the money multiplier (banks have less money to lend), thereby DECREASING money supply. The statement is correct in conclusion but the process described relates to how SLR reduction works.

Actually, increasing SLR decreases money supply – this statement is CORRECT.

Let me reconsider: Statement 1 is CORRECT – Increasing SLR forces banks to hold more reserves, reducing lending capacity and contracting money supply.

Statement 2 is CORRECT: When RBI reduces the Cash Reserve Ratio (CRR), banks need to hold less cash with the RBI, freeing up more money for lending. This increases the money multiplier effect and expands money supply. The money multiplier = 1/CRR, so lower CRR means higher multiplier.

Statement 3 is CORRECT: OMOs involving sale of securities by RBI means the central bank sells government securities from its portfolio. Commercial banks and financial institutions buy these securities by paying from their reserves, which reduces their liquid funds, thereby contracting money supply in the economy.

Statement 4 is INCORRECT: Increasing the repo rate makes borrowing from RBI more expensive. This discourages commercial banks from borrowing, not encourages them. Banks borrow less when rates increase.

Revision: Statements 1, 2, and 3 are correct, making the answer (a) 1, 2, and 3 only.

QUESTION 3: Answer (d)

Correct Answer: All of the above

Explanation:

Statement 1 is CORRECT: When the Indian rupee appreciates rapidly (becomes stronger), it can harm India’s export competitiveness by making exports more expensive for foreign buyers. Additionally, excessive rupee appreciation creates inflationary pressures from imported goods becoming cheaper. RBI intervenes by selling dollars in the forex market, which increases dollar supply and checks rupee appreciation. This is a standard intervention technique.

Statement 2 is CORRECT: The Current Account Deficit (CAD) reflects the difference between foreign exchange earned from exports of goods and services versus expenditure on imports. A higher CAD means the country needs more foreign currency inflows to finance this deficit. These inflows come through capital account transactions (FDI, FPI, external borrowing, etc.). Without adequate capital inflows, forex reserves deplete. Therefore, a larger CAD necessitates larger capital inflows to maintain forex stability.

Statement 3 is CORRECT: External Commercial Borrowings are loans taken by Indian firms from foreign lenders. While these borrowings increase India’s external debt (money owed to foreigners), they do provide immediate foreign exchange inflows when the borrowed funds enter the country. However, in accounting terms under the Balance of Payments, external borrowing is a capital account credit, and the subsequent repayment becomes a debit. The fiscal deficit specifically refers to government spending versus revenue, and ECB doesn’t directly appear in fiscal deficit calculations.

Key Concept: Understanding the Balance of Payments (BOP) structure is crucial – it comprises the Current Account (trade and services) and Capital Account (investment and borrowing).

QUESTION 4: Answer (b)

Correct Answer: Statements 2 and 4 only

Explanation:

Statement 1 is INCORRECT: The Fiscal Responsibility and Budget Management (FRBM) Act specifies targets for the fiscal deficit (total spending vs. revenue), not specifically the revenue deficit. The FRBM Act 2003 initially targeted a fiscal deficit of 3% of GDP. The Act does not mandate a specific revenue deficit target as a percentage of GDP, though revenue deficit is monitored as an indicator of fiscal health.

Statement 2 is CORRECT: Government spending on infrastructure (roads, railways, dams, etc.) is classified as capital expenditure because it creates productive assets that generate benefits over multiple years. This is distinguished from revenue expenditure (salaries, interest payments) which is consumed in the current period.

Statement 3 is INCORRECT: A budget deficit occurs when government EXPENDITURE exceeds government REVENUE, not when revenue exceeds expenditure. When revenue exceeds expenditure, it’s called a budget surplus. The statement has the definitions reversed.

Statement 4 is CORRECT: Disinvestment refers to the government selling its stakes in public sector enterprises (PSEs) to private parties or the open market. This generates revenue for the government in the current year. However, in accounting terms, disinvestment is classified as a “capital receipt” (not a revenue receipt), and under the definition of fiscal deficit used in India, disinvestment proceeds do not count toward revenue income. Therefore, disinvestment reduces the fiscal deficit but generates revenue income.

Key Distinction: Revenue deficit = Revenue expenditure minus revenue revenue. Capital receipts like disinvestment don’t reduce revenue deficit in the technical sense.

QUESTION 5: Answer (b)

Correct Answer: Statement 2 only

Explanation:

The Current Account Deficit (CAD) is calculated as: CAD = Imports – Exports (of goods and services, plus net income flows)

Statement 1 (IMPROVES CAD): Increase in exports of merchandise goods reduces the CAD because exports increase the credit side of current account. A wider trade surplus (exports > imports) narrows the CAD.

Statement 2 (WORSENS CAD): Increase in imports of petroleum and non-oil commodities directly increases the debit side of current account. Petroleum imports are particularly significant as India imports ~80% of its crude oil needs. Higher commodity imports widen the CAD.

Statement 3 (IMPROVES CAD): Remittances from Indians working abroad are classified as “income” in the current account (unrequited transfers). Increased remittances reduce the current account deficit. For example, remittances from the Indian diaspora contribute significantly to reducing India’s CAD.

Statement 4 (AFFECTS CAPITAL ACCOUNT, NOT CURRENT ACCOUNT): FDI is a capital account item, not a current account item. While increased FDI improves the capital account and provides forex inflows that help finance a given CAD, it doesn’t directly worsen or improve the CAD itself.

Key Concept: Current Account = Trade balance + Services balance + Primary income + Secondary income (transfers/remittances). Only current account items affect CAD.

QUESTION 6: Answer (b)

Correct Answer: Statements 2 and 3 only

Explanation:

Statement 1 is INCORRECT: The statement confuses FPI with FDI. Foreign Direct Investment (FDI) is direct investment in productive assets and represents managerial/operational involvement in the enterprise. FPI (Foreign Portfolio Investment) is investment in financial securities (stocks, bonds) and does NOT provide control or direct involvement in management. The statement describes FDI characteristics but attributes them to FPI.

Statement 2 is CORRECT: Masala Bonds are rupee-denominated debt securities issued by Indian entities (usually corporations or government agencies) in international markets outside India. Foreign investors purchase these bonds to gain exposure to Indian rupee-denominated returns. The term “Masala” reflects the Indian cultural context. These bonds help borrowers raise capital and reduce foreign exchange risk while allowing investors rupee exposure.

Statement 3 is CORRECT: When foreign institutional investors (including FPI flows) participate significantly in emerging market stock exchanges, they can amplify market volatility. During periods of global risk aversion or policy uncertainty, FPI outflows can trigger sharp market declines. Conversely, during risk-on periods, large FPI inflows can cause rapid market rallies. This volatility can be destabilizing for domestic market participants.

Statement 4 is INCORRECT: While FDI liberalization in Multi-Brand Retail Trade (initiated in 2012) was expected to create organized retail employment, the actual impact has been mixed and controversial. Employment generation has been limited due to: (1) automation in retail reducing per-unit labor needs, (2) displacement of unorganized retail workers, and (3) investment concentration in urban areas. Labor unions have protested that overall employment impact is negative.

Key Distinction: FDI = Direct investment with management control; FPI = Portfolio investment in securities without control.

QUESTION 7: Answer (a)

Correct Answer: Statements 1, 2, and 4 only

Explanation:

Statement 1 is CORRECT: The Consumer Price Index (CPI) measures the average change in prices paid by consumers for goods and services over time. India’s CPI is compiled for both rural and urban populations separately, and a combined CPI-UR (Urban + Rural) represents inflation experienced by the general consumer across the economy. The RBI uses CPI as its primary inflation metric for monetary policy.

Statement 2 is CORRECT: Demand-pull inflation occurs when aggregate demand (total spending) exceeds aggregate supply (total output) at existing price levels. With more money chasing the same quantity of goods, prices rise. This is summarized as “too much money chasing too few goods.” It’s distinguished from cost-push inflation (caused by rising input costs).

Statement 3 is INCORRECT: Stagflation is characterized by simultaneous occurrence of high inflation AND economic stagnation (low or negative growth), NOT high inflation with high growth. Stagflation is problematic because traditional policy responses to inflation (tight monetary policy) worsen growth, while policies to stimulate growth worsen inflation. High inflation with high growth is called overheating, not stagflation.

Statement 4 is CORRECT: The RBI’s monetary policy framework targets inflation (measured by CPI) at 4% with a tolerance band of +/- 2%, making a range of 2-6%. This framework was established after the amended RBI Act of 2016, which gave the central bank the mandate to maintain price stability while supporting growth and financial stability objectives.

Key Difference: Stagflation (bad growth + high inflation) vs. Overheating (good growth + high inflation)

QUESTION 8: Answer (a)

Correct Answer: Statements 2, 3, and 4 only

Explanation:

Statement 1 is INCORRECT: The primary sector’s share in India’s GDP has DECREASED substantially over decades, not increased. In 1950-51, agriculture was ~50% of GDP; by 2023-24, it had declined to approximately 18%. While agricultural mechanization has increased productivity per unit of land/labor, it has reduced the sector’s share in overall GDP as the economy diversified into manufacturing and services.

Statement 2 is CORRECT: The secondary sector (manufacturing, construction, processing industries) is crucial for:
– Creating employment for migrants from agriculture
– Achieving industrial development and technological advancement
– Increasing value addition and economic productivity
– Reducing import dependence through domestic production
– Building export capacity and earning foreign exchange

Statement 3 is CORRECT: The tertiary sector (services: IT, finance, retail, tourism, healthcare, education, etc.) currently contributes the highest percentage to India’s GDP, approximately 52-54% as of recent years. This reflects India’s emergence as a services-driven economy, particularly due to IT and IT-enabled services (ITeS) exports.

Statement 4 is CORRECT: India’s structural transformation has been characterized by a “premature” shift from primary sector directly to tertiary sector, bypassing robust secondary sector development. This creates several problems:
– Insufficient manufacturing capacity and industrial base
– Lower employment absorption capacity (services are less labor-intensive than manufacturing)
– Vulnerability to external shocks (dependence on service exports like IT)
– Lower value addition per capita compared to manufacturing-led economies
– Inability to absorb rural-to-urban migration effectively

This is a significant developmental concern identified by economists studying India’s growth trajectory.

Key Concept: India’s “premature deindustrialization” or skip from agriculture to services without strong industrialization.

QUESTION 9: Answer (a)

Correct Answer: Statements 2 and 3 only

Explanation:

Statement 1 is INCORRECT: Atmanirbhar Bharat does NOT aim to restrict all forms of FDI. Rather, it emphasizes strategic sectors and selective FDI policies. The strategy actually includes targeted FDI through Production-Linked Incentive (PLI) schemes in specific sectors like electronics, semiconductors, and pharmaceuticals. The goal is “self-reliance,” not autarky or complete isolation.

Statement 2 is CORRECT: A core objective of Atmanirbhar Bharat is building domestic capabilities and reducing import dependence. This includes:
– Developing strong domestic supply chains
– Encouraging “Make in India”
– Reducing critical imports, especially of raw materials and intermediate goods
– Enhancing domestic manufacturing and value addition
– Building competitiveness in export markets

Statement 3 is CORRECT: Production-Linked Incentive (PLI) schemes are explicit components of the Atmanirbhar Bharat initiative. These schemes provide financial incentives to domestic and global companies for manufacturing specified products in India. Examples include:
– PLI for Electronics and IT Hardware
– PLI for Automobiles and Auto Components
– PLI for Pharmaceutical ingredients
– PLI for Advanced Chemistry Cell batteries

These schemes attract both domestic and foreign investment to build manufacturing capacity in India.

Statement 4 is INCORRECT: Atmanirbhar Bharat does NOT involve shifting focus entirely from exports to domestic consumption. The strategy aims to strengthen both:
– Domestic production capacity for internal consumption (reducing imports)
– Export competitiveness through “Make in India” initiatives
– Integration into global supply chains from a position of strength

The concept emphasizes self-reliance, not isolation or purely domestic focus.

Key Concept: Atmanirbhar Bharat = Strategic autonomy + Competitive integration into global economy

QUESTION 10: Answer (a)

Correct Answer: Statements 1, 2, and 3 only

Explanation:

Statement 1 is CORRECT: Non-Banking Financial Companies (NBFCs) are financial institutions that provide credit and other financial services but are NOT authorized to accept deposits from the general public under RBI regulations. NBFCs must:
– Obtain a license from RBI
– Follow RBI regulations for reserve requirements and lending norms
– Are forbidden from accepting demand deposits (checking accounts) from the public
– Can accept term deposits (fixed deposits) under certain conditions
– Provide vehicles loans, personal loans, micro-credit, and other lending services

This distinguishes them from scheduled commercial banks which CAN accept deposits.

Statement 2 is CORRECT: Microfinance institutions (MFIs) serve low-income households and small entrepreneurs excluded from the formal banking system. MFIs provide:
– Small loans (microloans) for income-generating activities
– Mainly to the unbanked and under-banked population
– Often through joint liability group lending models
– Emphasis on financial inclusion and poverty alleviation
– Services particularly in rural areas where commercial banks have limited presence

Statement 3 is CORRECT: The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014, is a financial inclusion initiative with objectives:
– Provide universal access to banking services (every adult should have a bank account)
– Zero-balance accounts with basic banking services
– Debit card issuance for digital transactions
– Insurance and pension products
– Financial literacy and awareness programs
– Has opened >460 million accounts as of recent data

Statement 4 is INCORRECT: Shadow banking entities and NBFCs do NOT face the same regulatory oversight as scheduled commercial banks. While NBFCs are regulated by RBI through non-bank regulations, they face:
– Less stringent capital requirements than banks
– Different liquidity requirements
– Limited regulatory oversight compared to commercial banks
– No safety net provisions like deposit insurance
– Different provisioning requirements for bad loans

Shadow banking (entirely unregulated lending outside the formal system) faces even less oversight, making it a financial stability concern. RBI has progressively tightened NBFC regulations but maintains a different framework than for commercial banks.

Key Distinction:
– Commercial Banks: Regulated, can accept deposits, insured
– NBFCs: Regulated, cannot accept deposits (mostly), not insured
– Shadow Banking: Largely unregulated, highest risk

Daily Static Quiz