UPSC 2020 Economy Previous Year Questions

Question 1

With reference to the Indian economy, consider the following statements: 1. Commercial Paper is a short-term unsecured promissory note. 2. Certificate of Deposit is a long-term instrument issued by the Reserve Bank of India to a corporation. 3. Call Money is a short-term finance used for interbank transactions. 4. Zero-Coupon Bonds are the interest-bearing short-term bonds issued by the Scheduled Commercial Banks to corporations. Which of the statements given above is/are correct?

Accepted Answer

Correct Option: C. 1 and 2 only | 4 only | 1 and 3 only | 2, 3 and 4 only. Commercial Paper is a short-term unsecured promissory note, and Call Money is short-term interbank finance. CDs are not long-term RBI instruments to corporations, and zero-coupon bonds are not interest-bearing short-term bank bonds.

Question 2

What is the importance of the term "Interest Coverage Ratio" of a firm in India?

1. It helps in understanding the present risk of a firm that a bank is going to give loan to.
2. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to.
3. The higher a borrowing firm's level of Interest Coverage Ratio, the worse is its ability to service its debt.

Select the correct answer using the code given below:

Accepted Answer

Correct Option: A. 1 and 2 only | 2 only | 1 and 3 only | 1, 2 and 3. Interest Coverage Ratio measures a firm's ability to service interest obligations, helping banks assess present and emerging credit risk. A higher ratio means better, not worse, debt-servicing ability.

Question 3

In India, which of the following can be considered as public investment in agriculture? 1. Fixing Minimum Support Price for agricultural produce of all crops 2. Computerization of Primary Agricultural Credit Societies 3. Social Capital development 4. Free electricity supply to farmers 5. Waiver of agricultural loans by the banking system 6. Setting up of cold storage facilities by the governments Select the correct answer using the code given below.

Accepted Answer

Correct Option: C. 1, 2 and 5 only | 1, 3, 4 and 5 only | 2, 3 and 6 only | 1, 2, 3, 4, 5 and 6. Public investment creates productive public assets/capacity. Computerization of PACS, social capital development and government cold storage facilities qualify; MSP fixation, free electricity and loan waivers are subsidies/transfers, not investment.

Question 4

Consider the following statements: 1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks. 2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies. Which of the statements given above is/are correct?

Accepted Answer

Correct Option: B. 1 only | 2 only | Both 1 and 2 | Neither 1 nor 2. Scheduled commercial banks deliver more agricultural credit than DCCBs, so statement 1 is wrong. DCCBs provide funds/refinance to Primary Agricultural Credit Societies, making statement 2 correct.

Question 5

With reference to the Indian economy after the 1991 economic liberalization, consider the following statements: 1. Worker productivity (Rs. per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas. 2. The percentage share of rural areas in the workforce steadily increased. 3. In rural areas, the growth in non-farm economy increased. 4. The growth rate in rural employment decreased. Which of the statements given above is/are correct?

Accepted Answer

Correct Option: B. 1 and 2 only | 3 and 4 only | 3 only | 1, 2 and 4 only. After liberalization, rural non-farm growth increased and rural employment growth slowed. The statements about rural productivity decreasing and rural workforce share steadily increasing are not correct.

Question 6

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate. Select the correct answer using the code given below:

Accepted Answer

Correct Option: B. 1 and 2 only | 2 only | 1 and 3 only | 1, 2 and 3. An expansionary monetary policy would cut SLR/Bank Rate/Repo Rate or make liquidity easier; it would not increase the Marginal Standing Facility rate.

Question 7

With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct? 1. Quantitative restrictions on imports by foreign investors are prohibited. 2. They apply to investment measures related to trade in both goods and services. 3. They are not concerned with the regulation of foreign investment. Select the correct answer using the code given below:

Accepted Answer

Correct Option: C. 1 and 2 only | 2 only | 1 and 3 only | 1, 2 and 3. TRIMS prohibits trade-related investment measures inconsistent with GATT, including certain quantitative import restrictions. It concerns trade in goods, not services, and does not regulate foreign investment policy generally.

Question 8

In India, why are some nuclear reactors kept under "IAEA Safeguards" while others are not?

Accepted Answer

Correct Option: B. Some use uranium and others use thorium | Some use imported uranium and others use domestic supplies | Some are operated by foreign enterprises and others are operated by domestic enterprises | Some are State-owned and others are privately-owned. Reactors using imported uranium are placed under IAEA safeguards as part of India's separation plan and nuclear cooperation commitments; reactors using domestic supplies may remain outside safeguards.

Question 9

In the context of the Indian economy, non-financial debt includes which of the following? 1. Housing loans owed by households 2. Amounts outstanding on credit cards 3. Treasury bills Select the correct answer using the code given below:

Accepted Answer

Correct Option: D. 1 only | 1 and 2 only | 3 only | 1, 2 and 3. Non-financial debt includes debt of households, non-financial companies and government, so housing loans, credit-card dues and Treasury bills are included.

Question 10

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

Accepted Answer

Correct Option: B. It is the investment through capital instruments essentially in a listed company. | It is a largely non-debt creating capital flow. | It is the investment which involves debt-servicing. | It is the investment made by foreign institutional investors in the Government securities.. FDI is generally a stable, non-debt-creating capital flow involving lasting interest/control, unlike portfolio debt or government securities investment.

UPSC 2020 Economy PYQs with Answers