INSIGHTS STATIC QUIZ 2020 - 21
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- Question 1 of 5
1. Question
Consider the following statements about Socialist economy.
- It emphasises the collective ownership of the means of production.
- Its only central goal is to attain economic efficiency by most optimum utilization of factors of production.
Which of the above statements is/are incorrect?
CorrectSolution: b)
Communist economy advocates state ownership of all properties including even labour and absolute power to state in running the economy.
Socialistic economy, on the other hand, emphasises the collective ownership of the means of production (property and assets). It also ascribes a large role to the state in running the economy.
A socialist economy’s central goal is the welfare of its subjects by progressive and equitable distribution of income, widespread employment, economic growth etc.
Economic efficiency is generally the goal of capitalist economies.
IncorrectSolution: b)
Communist economy advocates state ownership of all properties including even labour and absolute power to state in running the economy.
Socialistic economy, on the other hand, emphasises the collective ownership of the means of production (property and assets). It also ascribes a large role to the state in running the economy.
A socialist economy’s central goal is the welfare of its subjects by progressive and equitable distribution of income, widespread employment, economic growth etc.
Economic efficiency is generally the goal of capitalist economies.
- Question 2 of 5
2. Question
Consider the following statements regarding Universal Banking.
- Universal banking is a system in which banks provide a wide variety of financial services, including commercial and investment services.
- Universal Banking was conceptualized in India after the recommendation of SH Khan Committee.
- They are exempted from the CRR and SLR requirements of the RBI.
Which of the above statements is/are correct?
CorrectSolution: c)
Universal banking is a system in which banks provide a wide variety of financial services, including commercial and investment services.
Banks in a universal system may still choose to specialize in a subset of banking service, even though they technically offer much more to their client base.
The second Narasimham committee of 1998 gave an introductory remark on the concept of the Universal banking. However, the concept of Universal Banking conceptualized in India after the SH Khan Committee recommended it as a different concept.
Once the Financial Institution becomes a universal Bank, it would be compliant with the CRR and SLR requirements of the RBI.
IncorrectSolution: c)
Universal banking is a system in which banks provide a wide variety of financial services, including commercial and investment services.
Banks in a universal system may still choose to specialize in a subset of banking service, even though they technically offer much more to their client base.
The second Narasimham committee of 1998 gave an introductory remark on the concept of the Universal banking. However, the concept of Universal Banking conceptualized in India after the SH Khan Committee recommended it as a different concept.
Once the Financial Institution becomes a universal Bank, it would be compliant with the CRR and SLR requirements of the RBI.
- Question 3 of 5
3. Question
Consider the following statements regarding Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
- The Act made Central government responsible for ensuring inter-generational equity in fiscal management and long-term macro-economic stability.
- The Act envisages the setting of limits on the Central government’s debt and deficits.
- The law contain an ‘escape clause’ under which Centre can exceed the annual fiscal deficit target.
Which of the above statements is/are correct?
CorrectSolution: d)
What is the FRBM Act?
Enacted in August 2003, the legislation is aimed at making the Central government responsible for ensuring “inter-generational equity in fiscal management and long-term macro-economic stability”.
To achieve this, the Act envisages the setting of limits on the Central government’s debt and deficits as well as mandating greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework.
The rules for implementing the Act were notified in July 2004 and since then every Budget of the Union government has included a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon.
The States have also enacted their own respective Financial Responsibility Legislation.
IncorrectSolution: d)
What is the FRBM Act?
Enacted in August 2003, the legislation is aimed at making the Central government responsible for ensuring “inter-generational equity in fiscal management and long-term macro-economic stability”.
To achieve this, the Act envisages the setting of limits on the Central government’s debt and deficits as well as mandating greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework.
The rules for implementing the Act were notified in July 2004 and since then every Budget of the Union government has included a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon.
The States have also enacted their own respective Financial Responsibility Legislation.
- Question 4 of 5
4. Question
In economics, the monetary base includes:
- Total currency circulating in the public.
- Currency that is physically held in the vaults of commercial banks.
- Sum total of the capital of all financial institutions regulated by Central Bank.
- Commercial banks’ reserves held in the central bank.
Select the correct answer code:
CorrectSolution: b)
In economics, the monetary base (also base money, high-powered money, reserve money) in a country is the total amount of bank notes and coins. This includes:
- the total currency circulating in the public,
- plus the currency that is physically held in the vaults of commercial banks,
- plus the commercial banks’ reserves held in the central bank.
The monetary base should not be confused with the money supply, which consists of the total currency circulating in the public plus certain types of non-bank deposits with commercial banks.
IncorrectSolution: b)
In economics, the monetary base (also base money, high-powered money, reserve money) in a country is the total amount of bank notes and coins. This includes:
- the total currency circulating in the public,
- plus the currency that is physically held in the vaults of commercial banks,
- plus the commercial banks’ reserves held in the central bank.
The monetary base should not be confused with the money supply, which consists of the total currency circulating in the public plus certain types of non-bank deposits with commercial banks.
- Question 5 of 5
5. Question
The FRBM Act contain an ‘escape clause’ under which Centre can exceed the annual fiscal deficit target on which of the following grounds?
- National security
- National calamity
- Collapse of agriculture
- Decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.
Select the correct answer code:
CorrectSolution: c)
How does a relaxation of the FRBM work?
The law does contain what is commonly referred to as an ‘escape clause’. Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.
There have been several instances of the FRBM goals being reset. Most recently, presenting the Budget for 2020-21 in February, Finance Minister Nirmala Sitharaman had cited the recent reductions in corporate tax as structural reforms that would trigger the escape clause.
But the most significant FRBM deviation happened in 2008-09, in the wake of the global financial crisis. Simultaneously, the deficit goals for the States too were relaxed.
IncorrectSolution: c)
How does a relaxation of the FRBM work?
The law does contain what is commonly referred to as an ‘escape clause’. Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.
There have been several instances of the FRBM goals being reset. Most recently, presenting the Budget for 2020-21 in February, Finance Minister Nirmala Sitharaman had cited the recent reductions in corporate tax as structural reforms that would trigger the escape clause.
But the most significant FRBM deviation happened in 2008-09, in the wake of the global financial crisis. Simultaneously, the deficit goals for the States too were relaxed.