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SOLUTIONS – INSIGHTS REVISION TEST for Preliminary Exam 2018: Test – 59(Economy)


INSIGHTS REVISION TEST for Preliminary Exam 2018: Test – 59(Economy)


1.  A foreigner is travelling by Air India from Delhi to Mumbai. what will be ts consideration in treatment of national income:


a) Import

b) Domestic consumption

c) Exports

d) None of the Above


Answer :C


If the net result is that money is coming in the circular flow than it is treated as exports. In this case Air India is an Indian Company and a foreigner will be contributing money towards his travel. Therefore, overall there would be foreign exchange inflow and thus we can classify it as an export.


2. What is the appropriate definition of cross price elasticity?

a) It measures the responsiveness of price changes and quantity demanded

b) It measures the responsiveness of demand for a commodity with respect to other commodities

c) It measures the responsiveness of demand and supply

d) It is the relation between price and income elasticity

Solution: b

Cross elasticity of demand or crossprice elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good,

3. Production limiting programs are covered under which kind of subsidies in the WTO:

a) Green box

b) Blue box

c) Amber box

d) Special and differential box ( S&DT)


Solution: b

In WTO terminology, subsidies in general are identified by “Boxes” which are given the colours of traffic lights:

Amber box — All domestic support measures considered to distort production and trade fall into the amber box. These include measures to support prices, or subsidies directly related to production quantities.

Blue box

  • This is the “amber box with conditions” — conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production.
  • At present there are no limits on spending on blue box subsidies.

Green box — Subsidies that not distort trade, or at most cause minimal distortion. They have to be government-funded (not by charging consumers higher prices) and must not involve price support.

  • They also include environmental protection and regional development programmes.

4. To get full benefit of demographic dividend, what should India do?


a) promote skill development

b) introducing more social security schemes

c) reducing infant mortality rate

d) privatisation of higher education


Solution: a


skill development would enable wider participation of the workers in trade and industry and help in reaping the rewards of demographic dividend.

5. Consider the following statements with respect to planning in India:

  1. Community development program aimed to bring about a social and economic transformation of village with the people participation.
  2. The second and third five year plan was based on wage goods model

Which of the above statements is/are correct:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Solution: a

The rationale and details of the Wage-Goods Strategy was explained in ‘Planning for an Expanding Economy’, published in 1956. But this strategy was rejected and instead, the Mahalanobis strategy was accepted by the Planning Commission for the second plan and the third plan as well. The Wage-Goods strategy mainly emphasizes on employment expansion, poverty eradication, reduction in income inequalities, etc. It insists on more investment in the Wage-Goods sector. It focuses mainly on the poor sections of society. (Hence statement 2 is incorrect.)


The Planning Commission has defined the Community Development Programme in these words: “Community development is an attempt to bring about a social and economic transformation of village life through the efforts of the people themselves.”  (Hence statement 1 is correct).


6. Consider the following about agriculture/commodities in India:

  1. NAFED maintains buffer stocks of pulses and oilseeds
  2. Cotton corporation helps the farmers in selling their produce at competitive rates.

Which of the above statements is/are correct:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Solution: c

NAFED — National Agricultural Cooperative Marketing Federation of India Ltd.(NAFED) 

  • It was established in1958. Nafed is registered under the Multi State Co-operative Societies Act. Its object is to promote Co-operative marketing of Agricultural Produce to benefit the farmers.
  • Under Price Stabilization Fund (PSF) Scheme NAFED took initiative for buffer stocking of  pulses.
  • Nafed is one of the central Nodal Agencies for procurement of 16 notified agricultural commodities of Oilseeds, Pulses and Cotton under Price Support Scheme (PSS) and continues to be the sole central Nodal Agency for procurement of Milling, Ball Copra and De-husk Copra under Price Support Scheme.

Hence statement 1 is correct.

Cotton corporation of India

It extending necessary marketing support to the cotton growers in selling their kapas produce at most competitive prices in the various market yards in all cotton growing States through timely intervention.

Hence statement 2 is correct

7. Consider the following about coal sector in India:

  1. Recently the government has allowed commercial coal companies to start business in India
  2. Private coal mines do not exist in India

Which of the above statements is/are correct:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Solution: a

Private coal mines do exist but only for captive purposes such as in the case of ultra-mega power projects.

Hence statement 2 is incorrect.

8. Consider the following statements about various Banking Regulatory norms:

  1. The implementation of BASEL norms has been deferred indefinitely seeking resurrection of health of banking system
  2. RBI has deferred Ind-AS standards to 1st April,2019

Which of the above statements is/are correct:

a) 1 only

b) 2 only

c) Both 1 and 2

d) None of the above

Solution: b

The RBI has extended the transitional period for full implementation of Basel III Capital Regulations in India upto March 31, 2019, instead of as on March 31, 2018. This will also align full implementation of Basel III in India closer to the internationally agreed date of January 1, 2019.

Hence statement 1 is incorrect.

The Reserve Bank of India has deferred the adoption of Indian Accounting Standards (Ind AS) by banks, for a year, due to unpreparedness of banks to migrate to the new accounting system.

Hence statement 2 is correct.

9. The Sandesh Pathak Application is for the benefit of:

a) Improving health delivery outcomes

b) Improving early warning system for the extreme events like cyclone, tsunami

c) It is aimed at increasing literacy rate in country

d) None of the Above

Solution: d

The Sandesh Pathak application, developed jointly by C-DAC Mumbai, IIT-Madras, IIIT Hyderabad, IIT Kharagpur, and C-DAC Thiruvananthapuram will enable SMS messages to be read out loud, for the benefit of farmers who may have difficulty in reading. It is usable by people who cannot read. A large population of farmers belongs to this category. So when they receive an SMS message either containing agriculture-related advice or some other thing, this app will read aloud the content.

The app which is available for download from the Appstore of the Mobile Seva Project of government of India, is an Indian language SMS Reader.

The app is part of the project launched by the Indian Government to help farmers read messages which may be of the following types: advice to solve farming problems — insect, disease, fertilizer or weed management; information on weather — such as forecasts; and updates on latest technology — for improving yield and much more.

10.which of the following are the key instruments of Money Laundering:

  1. Placement -> Layering -> Integration
  2. Round Tipping
  3. Participatory Notes

Select you answers using the codes below:

a) 1 and 2 only

b) 1 and 3 only

c) 2 and 3 only

d) 1, 2 and 3

Solution: b

Round tripping FDI’. Here, money from a country (eg. India) flows to a foreign country (Mauritius) and comes back as foreign direct investment to India.

Money Laundering: PNs are becoming a favourite with a host of Indian money launderers who use them to first take funds out of country through hawala and then get it back using PNs.

11. Agreement on agriculture covers which of the following sub-agreements:

  1. Market access
  2. Domestic support
  3. Export subsidies
  4. CODEX standards

Select your answer using the codes below:

a) 1 and 2 only

b) 1, 2 and 3 only

c) 2,3 and 5

d) 1, 2, 3 and 4 only

Solution: b

Agreement on agriculture is based on three pillars and supported by a fourth through the SPS Standards.

  1. Market access is about allowing foreign agri products.
  2. Domestic support is about green box, blue box and amber box subsidies.
  3. Export subsidies

Codex standard are the food standards prescribed by the FAO and WHO.

12. What is true about dumping?

a) It is the practice of flooding the market with goods

b) It is the selling of products below cost of home market

c) It is the practice of dumping second hand goods in foreign markets

d) It is a form of boycott of foreign products

Solution: b

If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product.

WTO allows companies to protect themselves though anti-dumping as part of its safeguard mechanisms.

13. Match the following pairs:

Economic Systems                                                    Idealogy
1. Capitalism (market economy)                           A.  Private ownership
2.   Socialism                                                     B.  social ownership 
3. Communism                                                   C. Classless society

which of the followings are correctly matched?

a) 1-B 2-A 3-C
b) 1-A 2-B 3-C
c) 1-C 2-A 3-B
d) 1-B 2-C 3-A

Solution: b

Capitalism —  economic system based upon private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets

Socialism — economic and social systems characterised by social ownership and democratic control of the means of production.  Social ownership may refer to forms of public, collective or cooperative ownership, or to citizen ownership of equity.

Communism — Economic and social system in which all (or nearly all) property and resources are collectively owned by a classless society and not by individual citizens.

14.Receipts in budget can be capital or revenue. Which of these is/are capital receipts?

  1. Loan recoveries
  2. Provident funds deposits
  3. Grants

Select the correct answer using the codes given below.

a) 1 and 2 only

b) 1 and 3 only

c) 2 and 3 only

d) 1, 2 and 3

Solution: a

Loan recoveries are the money, which the government had lent out in past, their capital comes back to the government when the borrowers repay them as capital receipts. long-term capital accruals to the government through the Provident Fund (PF), Postal Deposits, various small saving schemes (SSSs) and the government bonds sold to the public (as Indira Vikas Patra, Kisan Vikas Patra, Market Stabilization Bond, etc.) are also capital receipts.

 Grants are revenue receipts.

15. Gross capital formation will increase if:

  1. gross domestic savings increases
  2. gross domestic consumption increases
  3. GDP increases

Select the correct answer using the codes given below.

a) 1 only

b) 1 and 2 only

c) 1 and 3 only

d) None

Solution: d

Gross capital formation, in simple terms is equivalent to investment made. It was earlier called gross domestic investment. The part of GDP that is used is called gross domestic consumption, while the part that is saved is gross domestic savings (GDS). Some part of this GDS will be re-invested back, and that is called gross capital formation. Now, an increase in GDP or GDS will not necessarily lead to an increase in capital formation. Because how much in invested back will depend on many other factors.


16. Which of the following methods is not used in calculation of national income in India?

a) income method

b) expenditure method

c) ad-hoc sample method

d) value added method

Solution: c

Value Added Method:

This is also called output method or production method. In this method the value added by each enterprise in the production goods and services is measured. Value added by an enterprise is obtained by deducting expenditure incurred on intermediate goods such as raw materials, unfinished goods (purchased from other firms from the value of output produced by an enterprise.

Income Method:

This method approaches national income from distribution side. In other words, this method measures national income at the phase of distribution and appears as income paid and or received by individuals of the country. Thus, under this method, national income is obtained by summing up of the incomes of all individuals of a country. Individuals earn incomes by contributing their own services and the services of their property such as land and capital to the national production.

Expenditure Method:

Expenditure method arrives at national income by adding up all expenditures made on goods and services during a year. Income can be spent either on consumer goods or capital goods. Again, expenditure can be made by private individuals and households or by government and business enterprises.

17.what do you mean by a flagship programme?

a) Any programme which is the symbolic of the main thrust of the nation’s developmental policy. and so declared from time to time.

b) Any programme which is the mainstay of the ministry

c) Any programme which has greater than 10% share in allocation of funds for the ministry

d) Any scheme which benefits a lrage section of the population especially women/SC/ST

Solution: a

Flagship schemes of the government of India are those schemes which are declared so by the union cabinet or the Development Evaluation Advisory Committee (DEAC) of Planning Commission. The list of flagship programmes can be modified by the DEAC or the Government from time to time.

18.consider the following about money supply:

  1. Narrow money is also called M1
  2. Broad money is also called M3
  3. H or high powered money is synonymous with M3

Select your answer using the codes below:

a) 1 and 2 only

b) 1 and 3 only

c) 1, 2 and 3 only

d) 2 and 3 only

Solution: a

Narrow money-money in forms that can be used as a medium of exchange, generally notes, coins, and certain balances held by banks.

Broad Money-money in any form including bank or other deposits as well as notes and coins.

High Powered Money– the total liability of the monetary authority of a nation

19 what do you mean by universal primary education:

a) Equality of educational opportunity to all irrespective of male and female

b) Similar enrollment benchmarks for rural and urban areas

c) Adequate opportunity to minorities in education

d) Equal opportunities to SC/ST

Solution: a

The second goal in the United Nations Millennium Development Goal is to achieve Universal Primary Education, more specifically, to “ensure that by 2015, children everywhere, boys and girls alike will be able to complete a full course of primary schooling.”

It means giving everyone an equal opportunity in education, regardless of their social class, gender, ethnicity background or physical and mental disabilities.

Also sarva shiksha Abhiyaan aimed at universal primary education.

20. Consider the following statements with reference to public goods:

  1. Public goods have free rider problem
  2. Public goods are non-exclusive in nature
  3. Public goods are non-rival
  4. Pure public goods cannot be charged for

Select your answer using the codes below:

a) 1 and 3 only

b) 1,2 and 3

c) 2 and 3 only

d) 1 and 2 only

Solution: b

In economics, a public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.

Hence statement 2 and 3 are correct.

Free rider problem is a situation where some individuals consume more than their fair share or pay less than their fair share of the cost of a shared resource. Since public goods are non rivalrous and non excludable there is no free rider problem associated with public good.

Hence statement 1 is  correct.

 Economists use the term Public Goods to refer to products (goods or services) that are difficult to keep nonpayers from consuming (no excludability), and of which anyone can consume as much as desired without reducing the amount available for others (no rival consumption).


21. Five plays A, B, C, D and E are to be staged from Monday to Friday of a week. On each day, only one play will be staged. D or E should not be either the first or last to be staged. E should be immediately followed by C. B should be staged immediately after D. One play is staged between A and B. Which of the following is the correct sequence of staging all the plays?

a) A D B C E

b) A E C D B

c) B D A E C

d) None of the above


Solution: d



E should be immediately followed by C i.e. the order EC should be followed.

D should be immediately followed by B i.e. the order DB should be followed.

Since D and E should be within Tuesday to Thursday, the possible order from Tuesday to Friday is


Since one play is staged between A and B, the possible arrangement from Monday to Friday is


Hence, option (d) is correct.


Directions for questions 22 and 23:

Read the following information carefully and answer the questions that follow.

  1. P, Q, R, S, T and U are six students procuring their Master’s degree in six different subjects- English, History, Philosophy, Physics, Statistics and Mathematics.
  2. Two of them stay in hostel; two stay as paying guest (PG) and the remaining two stay at their home.
  3. R does not stay as PG and studies Philosophy.
  4. The students studying Statistics and History do not stay as PG.
  5. T studies Mathematics and S studies Physics.
  6. U and S stay in hostel. T stays as PG and Q stays at home.

22. Which of the following combinations of subjects and place of stay is not correct?

a) English- Hostel

b) Mathematics- PG

c) Philosophy- Home

d) Physics- Hostel

Solution: a


23. Which of the following pairs of students stay one each at hostel and at home?

a) QR

b) SR

c) US

d) Data inadequate

Solution: b


Refer the explanation for previous question.

S stays in hostel and R stays at home.

Hence, option (b) is correct.


24. By how many minutes does the minute hand move in the same time, in which the hour hand move by 18 degrees?

a) 24

b) 36

c) 48

d) 54

Solution: b


When the hour hand moves by 18 degrees, the minute hand is moves 12 times 18 degrees i.e. 216 degrees.

1 minute = 6 degrees

So, 216 degrees = (216/6) minutes = 36 minutes.

Hence, option (b) is correct.


25. Mr.Ramu’s mother’s father-in-law’s only son’s only daughter’s son is Chetan. How is Ramu related to Chetan?

a) Uncle

b) Nephew

c) Niece

d) Father

Solution: a