UPSC 2013 Economy PYQs with Answers

Regional Rural Banks and Land Development Banks lend directly to rural households. NABARD mainly refinances and supports rural credit institutions rather than giving ordinary direct household credit.

National income measures the money value of final goods and services produced during a period, avoiding double counting of intermediate goods.

Sustained economic growth requires addition to productive capacity, and capital formation directly expands that capacity. Population growth, world technical progress or world trade growth do not necessarily produce growth in country X.

If money supply is unchanged but demand for money rises, money becomes relatively scarce. The price of money, i.e. the interest rate, increases.

Financing a budget deficit by creating new money directly increases money supply and is most inflationary. Borrowing from the public is less inflationary because it transfers existing purchasing power.

India's forex reserves include foreign-currency assets, RBI gold holdings, SDRs and reserve position in the IMF. Loans from foreign countries or World Bank are not counted as reserves.

General prices can rise due to more money supply, reduced aggregate output or increased effective demand. All three create inflationary pressure through demand-supply imbalance.

Demographic dividend becomes productive only if the working-age population has employable skills. Skill development is therefore central to converting population structure into economic gain.

Thermal power plants consume very large quantities of water for steam generation and cooling. Among the listed industries, thermal power is the maximum water consumer.

Priority Sector Lending includes lending to agriculture, micro and small enterprises, weaker sections and other notified priority sectors. Therefore all listed categories are included.

Open Market Operations are the RBI's purchase and sale of government securities to manage liquidity and monetary conditions.

Currency is the most liquid asset, followed by demand deposits, then savings deposits, and finally time deposits because they have maturity restrictions. Thus the order is 4-1-3-2.

Disguised unemployment exists when more workers are engaged than needed, so removing some workers does not reduce output. Their marginal productivity is effectively zero.

Inflation reduces the real value of money owed, benefiting debtors who repay in depreciated currency. Bond-holders receive fixed payments whose real value falls, so they do not benefit.

Capital account records capital flows such as foreign loans, FDI and portfolio investment. Private remittances are current transfers and belong to the current account.

Deficit financing in India has historically been used to raise resources for planned economic development when revenue and borrowings were insufficient.

A higher Bank Rate makes central bank borrowing costlier and signals monetary tightening. It generally indicates a tight money policy intended to reduce credit expansion.

RBI regulates commercial banks through liquidity norms, branch licensing/expansion permissions, merger approvals and winding-up-related regulatory processes. Hence all four are within its regulatory domain.

Balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world over a period, including trade, services, transfers and capital flows. Among the options, import-export transactions best captures the record.

Bagasse can be used as biomass fuel, and molasses is used to produce ethanol. Molasses is not a feedstock for synthetic chemical fertilizers in the manner stated.