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SOLUTIONS: Insights Revision Test for Prelims 2018- DAY – 2


INSIGHTS REVISION TEST for Preliminary Exam 2018: Test – 2


1) Which of the following statements is/are correct regarding Monetary Transmission?

  1. It refers to the process by which a central bank’s monetary policy decisions are passed on to the financial markets
  2. Rising Non-Performing Assets (NPAs) and higher returns on small savings schemes may hinder effective monetary transmission.
  3. Lowering of CRR and SLR requirements may help ensure effective monetary transmission

Select the correct answer using the code given below

(a) 1 only

(b) 2 and 3 only

(c) 1 and 2 only

(d) 1, 2 and 3


The monetary transmission mechanism is the process by which asset prices and general economic conditions are affected as a result of monetary policy decisions. Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and credit in order to affect overall economic performance. The traditional monetary transmission mechanism occurs through interest rate channels, which affect interest rates, costs of borrowing, levels of physical investment, and aggregate demand. Additionally, aggregate demand can be affected through friction in the credit markets, known as the credit view. In short, the monetary transmission mechanism can be defined as the link between monetary policy and aggregate demand.

2)Which of the following services are accounted in the Gross Domestic Product of a country?

  1. Services rendered by a domestic help
  2. Services rendered by a worker from unorganized sector
  3. Services produced in Indian embassies located abroad
  4. Services produced in military establishments located abroad


Select the correct answer using the codes given below

(a) 1 and 2 only

(b) 1, 2 and 3 only

(c) 2, 3 and 4 only

(d) 1, 2, 3 and 4


What is not included in GDP
  Intermediate goods, second hand sales and two others-

  • Non market transactions-trading or barter, Homemaker services
  • Underground economy-gambling, smuggling, prostitution, drugs and counterfeiting


3). With reference to Effective Revenue Deficit; consider the following statements:

  1. It was introduced on the recommendation of 13th Finance Commission
  2. It includes all the revenue expenditure done in the form of grants for creation of capital assets
  3. Grants given under MNREGA to build capital assets like roads and ponds forms part of it


Which of the statements given above is/are correct?

(a) 1 only

(b) 2 and 3 only

(c) 3 only

(d) None

Solution: d

Effective Revenue Deficit is the difference between revenue deficit and grants for the creation of capital assets. In other words, the Effective Revenue Deficit excludes those revenue expenditures which were done in the form of grants for the creation of capital assets

4). Consider the following statements:

Assertion (A): In the agricultural lending mechanism of India, moneylenders despite their usurious rates of interest are still predominant.

Reason (R): Most often the commercial banks could not meet the target of 18% of their total lending for the agricultural sector in the country.

Select the appropriate answer using the codes below:

(a) Both (A) and (R) are true and (R) is the correct explanation of (A).

(b) Both (A) and (R) are true, but (R) is not the correct explanation of (A).

(c) (A) is true and (R) is false.

(d) (A) is false and (R) is true.

Solution: a


5). Which of the following is/are Government of India debt obligations?

  1. State Provident Funds
  2. Small Savings
  3.  Reserve Money
  4. Reserve Funds and Deposits

Select your answer using the codes below:

(a) 1 and 2 are correct.

(b) 1,, 2 and 4 are correct.

(c) 2 and 4 are correct.

(d) 1, 2 and 3 are correct.



In economics, the monetary base (also base money, money base, high-powered money, reserve money, outside money, central bank money or, in the UK, narrow money) in a country is defined as the portion of a commercial bank’s reserves that consist of the commercial bank’s accounts with its central bank plus the total currency circulating in the public, plus the currency, also known as vault cash, that is physically held in the bank’s vault. Thus reserve money is not a debt obligation for the government.

6). List – I                  List – II

  1. Free trade area         1. No restrictions on trade and factor movement
  2. Customs union          2. Trade is free and no Customs Duties
  3. Common market       3. No Customs Duties but duties on nonmembers
  4. Economic union        4. Advanced stage of integration


a          b          c          d

(A)       2          1          3          4

(B)       3          2          4          1

(C)       2          3          1          4

(D)       1          3          4          2




7). What is the relationship between savings, investments and growth as enumerated in the economic survey?

a) Saving slowdown might result in a growth slowdown and vice-versa

b) Growth slowdowns are preceded by investment slowdowns

c) Saving and investment are always equal and directly related to growth

d) Growth has limited bearing on savings and investment

Solution: b

The economic survey says that investment rate is much more significant for growth. The savings rate correlation to economic growth is not that significant. It says that growth slowdowns have been preceded by investment slowdowns.


8) The File cover chosen for 2018 economic survey report was pink because

a) To support human rights

b) To highlight gender issues against backdrop of development

c) To extend support to trafficking victims

d) To create mass awareness on Child Trafficking

Solution: b

Pink-Color Economic Survey 2017-18 Highlights Gender Issues Against Backdrop of Development Beti Bachao, Beti Padhao; Sukanya Samridhi Yojana and Mandatory Maternity Leave are all Steps in Right Direction, Acknowledges Survey.

9). Which of the following doesn’t belong to the 10 facts pointed by Economic Survey 2017:

a) Formal non-agricultural payroll much greater than believed

b) States prosperity positively correlated with their international and inter-state trade

c) Clothing incentive package boosts exports of readymade garments

d) Direct tax collections by state/local governments is significantly higher compared with those of their counterparts in other federal countries

Solution: d

Please refer to economic survey summary.


10). What do we understand by the term food credit in India?


a) Loans given to farmers

b) Loans given to poor families in distress

c) Loans given to FCI for procurement operations

d) None of the above

Solution: c


The Credit/Loan provided by the nationalised banks to the FCI (Food Corporation of India) is known as food credit.  It is used for procurement of food grains by FCI and is a part of the Gross Bank Credit


11). Special Safeguard mechanisms were put into place to get rid of NPAs in which sector:

  1. Steel
  2. Power
  3. Construction
  4. Ship Building


Which of the above is/are correct:


a) Only 1

b) 1 and 2

c) 1,2 and 3

d) All of the above

Solution: a


Special safeguard mechanism includes dumping, infant industry and countervailing duties. They are a mechanism under WTO and were used largely in the steel sector. It was also primarily targeted at cheap imports from China.


12).  What was response of Public Sector Banks in wake of Twin Balance Sheet problem?

  1. They scaled back their new lending.
  2. They increased their interest margins for performing borrowers and depositors, thus effectively burdening MSME sector for no fault of their own.

Identify the correct statements

a) 1 only

b) 2 only

c) Both

d) Neither of the above

Solution: c

Banks faced shortage of capital to give adequate credit and also high cost of operations and stress assets led to higher costs for all sections of the society.

13). Which of following constitute future fiscal challenges for the states?

  1. Pay Commission recommendations
  2. slowing growth
  3. rising payments from the UDAY bonds
  4. Increased discretionary spending through flexi funding mechanisms

Identify the correct statements

a) 1 & 2 only

b) 1, 2 & 3 only

c) All are correct

d) None are correct

Solution: b

Flexi funding is a good thing and not a challenge but an opportunity for states. Rest will put additional fiscal burden on the performance of state governments.

14). Which factors provided impetus to the impressive fiscal performance by the states?

  1. Passing of Fiscal responsibility legislations
  2. Acceleration of GDP growth
  3. Decline in interest payments
  4. increased transfers from the Centre and central CSS expenditure

Identify the incorrect statements

a) 1 & 2 only

b) 2 & 3 only

c) All

d) None

Solution: c

All of them improved fiscal performance by state governments. Perhaps it is high time state governments use these opportunities to enable a better living standard for their population in terms of health, education and other schemes.

15). Consider the following statements regarding fiscal consolidation in India:


  1. India like several other countries, embarked in the mid-2000s on an ambitious project of fiscal consolidation.
  2. Fiscal Responsibility and Budget Management (FRBM) Act was adopted by the centre in 2003.


Identify the correct statements

a) 1 only

b) 2 only

c) Both

d) Neither of the above

Solution: c

This was done to avoid high debt service ratios and greater revenue deficits. Also the interest burdens was becoming too much to bear.


16). Consider the following statements:


Assertion (A): After Fiscal Responsibility legislations were passed, states expanded more discretionary spending.

Reason (R) : It would be easier to scale back discretionary spending, if needed to achieve the deficit targets.

Identify the correct statements (Assertion – A & Reason – R)

a) Both A and R are true but R is the correct explanation of A

b) Both A and R are true but R is not a correct explanation of A

c) A is true but R is false

d) A is false but R is true

Solution: a

States could role back discretionary spending when needed and therefore failed to go for long term improvements in health and education policies.


17). Assertion: During the mid-2000s debt of the companies increased.

Reason: The period witnessed high growth rates of economy with increasing investment-GDP ratio and overseas spending.

Identify the correct statements (Assertion – A & Reason – R)

a) Both A and R are true but R is the correct explanation of A

b) Both A and R are true but R is not a correct explanation of A

c) A is true but R is false

d) A is false but R is true



 Indian companies expanded aggressively before the recession and got stuck with surplus capacity and slowing global economy. The financial crises also made access to working capital tougher.

18) which of the following about RBI governor is incorrect:

a) He is part of the search cum selection committee for members of Monetary Policy Committee

b) He heads the MPC

c) He represents India in IMF

d) He is having casting vote in MPC

Solution: c

India is represented by an executive director in the IMF. Currently Subir Gokaran is responsible for representing India. He was the Deputy governor of RBI.


19). Graded surveillance system is in the news in the context of:

a) Abnormal rise in Non-performing assets of Public Sector Banks

b) Detection of various shell companies and money laundering

c) Unusual price movements in the stock Market

d) Detection of various frauds in the banking system

Solution: c

It was introduced by SEBI to check for fraudulent practices. It also issued a notification that if such price movements were found the companies would be classified as shell companies and money laundering provisions could be initiated against such companies.


20). Consider the following statements:

  1. NBFCs can outsource various functions such as treasury, cash management etc
  2. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself
  3. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks

Which of the above statements are true:

a) 2 and 3

b) 1 and 3

c) Only 3

d) All of the above


Source: Insight module –Economy

NBFCs cannot outsource core management functions only. But they are allowed to outsource other aspects. Deposit insurance has been discussed under FRDI bill but still not passed in the parliament.

21) After Doklam stand-off between India and China, other than Nathu La Pass the most favourable route for Indian piligrims to Kailash-Mansarovar is

a) Shipki La

b) Bomdila

c) Lipu Lekh Pass

d) Niti La


    Solution : c)

  • Lipu Lekh pass is high altitude mountain pass in Uttarakhand suitable for accessing Kailash-Manasarovar from Western Side.


22) As per Indian Extradition Act, 1962.

  1. Offences punishable with a minimum one year of imprisonment qualities for an extradition request.
  2. A foreign national responsible for offence on Indian soil can be extradited.
  3. India has extradition treaty with U.A.E

  Which of the following is correct?

a) 1 and 3

b) 2 and 3

c) 3 only

d) All of the above

Solution: d)

  • Any offence punishable for one or above years is qualified for extradition.
  • India requested extradition of warren Anderson and Ottavio Quattrocchi who were foreign nationals.
  • India-has extradition treaty with 42 countries.

23) Consider the following statement regarding GM Mustard.

  1. It is first GM food crop approved by GEAC.
  2. DMH-11 is herbicide tolerant allowed for commercial cultivation in India.

 Which of the following is/are correct?

a) 1 Only

b) 2 Only

c) Both 1 and 2

d) None of the above

Solution b)

  • Bt-cotton was the first GM crop approved but it’s not food crop. Bt-brinjal was the first gm-food crop approved by GEAC
  • Dhara Mustard Hybrid -11 is herbicide tolerant GM Mustard crop approved by GEAC, but not yet approved by Environment Ministry.

24) Consider the following statements regarding International court of Justice.

  1. Dalveer Bhandari is the first Indian permanent judge elected to ICJ.
  2. Judges are elected by members of UNGA and UNSC by absolute majority for a term of 6 years.

  Which of the following is/are correct?

a) 1 only.

b) 2 only

c) Both 1 and 2

d) None of the above


  • Maharaj Sri NAgendra Singh was first Indian Judge elected to ICJ.
  • Judges are elected for a term of 9 years.

25) Consider the following statement regarding U.N-TIR convention (Transports Internationaux Routiers Convention)

  1. The accession to TIR convention is part of India’s multi-modal transport strategy for global economic integration.
  2. It also includes maritime transport which will be helpful in boosting trade with Central Asian Republics through Chabahar Port.

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above.


TIR convention will boost Indian trade with Central Asian countries and neighboring countries. It is considered as India’s counter to China’s OBOR project. It also includes maritime transport but at least a part of transport should be through roadways