UPSC Static Quiz – Economy : 22 November 2025 We will post 5 questions daily on static topics mentioned in the UPSC civil services preliminary examination syllabus. Each week will focus on a specific topic from the syllabus, such as History of India and Indian National Movement, Indian and World Geography, and more. We are excited to bring you our daily UPSC Static Quiz, designed to help you prepare for the UPSC Civil Services Preliminary Examination. Each day, we will post 5 questions on static topics mentioned in the UPSC syllabus. This week, we are focusing on Indian and World Geography.
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Question 1 of 5
1. Question
Consider the following statements regarding the Payment and Settlement Systems Act, 2007 (PSS Act):
- The Act grants the Reserve Bank of India (RBI) the authority to regulate, supervise, and control payment systems in India.
- The Act allows foreign entities to operate payment systems in India without requiring RBI approval.
- Under the Act, the RBI can impose monetary penalties and revoke authorization for non-compliance with regulatory norms.
Which of the above statements are correct?
Correct
Solution: B
Statement 1 is correct: The RBI has been given full authority under the PSS Act, 2007, to regulate, supervise, and control payment and settlement systems in India.
Statement 2 is incorrect: Foreign entities cannot operate payment systems in India without RBI authorization. They must obtain specific approvals under the Act.
Statement 3 is correct: The RBI can impose penalties, revoke authorizations, and take enforcement actions against payment system operators violating regulations.
Incorrect
Solution: B
Statement 1 is correct: The RBI has been given full authority under the PSS Act, 2007, to regulate, supervise, and control payment and settlement systems in India.
Statement 2 is incorrect: Foreign entities cannot operate payment systems in India without RBI authorization. They must obtain specific approvals under the Act.
Statement 3 is correct: The RBI can impose penalties, revoke authorizations, and take enforcement actions against payment system operators violating regulations.
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Question 2 of 5
2. Question
Consider the following statements regarding Financialisation as discussed in the Economic Survey 2024-25:
- It refers to the growing dominance of financial markets and institutions in shaping economic policies.
- The Economic Survey warns against excessive financialisation due to potential risks like inequality and economic instability.
- Financialisation always leads to higher GDP growth as it enhances capital flow and market efficiency.
How many of the above statements is/are correct?
Correct
Solution: B
Financialisation refers to the increasing influence of financial markets and institutions in economic policymaking (Statement 1 – Correct).
The Economic Survey cautions against excessive financialisation, warning that it can increase inequality, cause over-reliance on financial asset prices, and lead to financial instability (Statement 2 – Correct).
However, financialisation does not always lead to higher GDP growth. While it enhances capital flow, excessive dependence on financial markets can create volatility and systemic risks, especially if real-sector growth lags (Statement 3 – Incorrect).
About Financialisation:
- What it is: Financialisation refers to the growing dominance of financial markets, institutions, and motives in shaping economic policies and outcomes.
- Factors leading to it:
- Increased household savings flowing into stock markets.
- Rising participation of retail investors in financial markets.
- Over-reliance on asset prices to offset leverage.
- Policy and regulatory frameworks influenced by financial market considerations.
- Implications:
- Rising public and private sector debt.
- Exacerbation of economic inequality.
- Over-dependence on financial markets for economic growth.
Incorrect
Solution: B
Financialisation refers to the increasing influence of financial markets and institutions in economic policymaking (Statement 1 – Correct).
The Economic Survey cautions against excessive financialisation, warning that it can increase inequality, cause over-reliance on financial asset prices, and lead to financial instability (Statement 2 – Correct).
However, financialisation does not always lead to higher GDP growth. While it enhances capital flow, excessive dependence on financial markets can create volatility and systemic risks, especially if real-sector growth lags (Statement 3 – Incorrect).
About Financialisation:
- What it is: Financialisation refers to the growing dominance of financial markets, institutions, and motives in shaping economic policies and outcomes.
- Factors leading to it:
- Increased household savings flowing into stock markets.
- Rising participation of retail investors in financial markets.
- Over-reliance on asset prices to offset leverage.
- Policy and regulatory frameworks influenced by financial market considerations.
- Implications:
- Rising public and private sector debt.
- Exacerbation of economic inequality.
- Over-dependence on financial markets for economic growth.
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Question 3 of 5
3. Question
Which of the following factors contribute to excessive financialisation in an economy?
- Rapid expansion of stock market participation by retail investors
- Over-reliance on asset price appreciation for economic growth
- Increased household savings in bank deposits rather than market investments
Select the correct answer using the codes given below:
Correct
Solution: C
Rapid stock market expansion increases the role of financial markets in economic policymaking, often at the expense of real-sector investments (Statement 1 – Correct).
Over-reliance on asset price appreciation (like rising stock or real estate values) instead of productivity-driven economic growth is a key feature of excessive financialisation (Statement 2 – Correct).
Increased household savings in bank deposits does not contribute to financialisation; instead, financialisation grows when savings are directed into capital markets rather than traditional savings instruments (Statement 3 – Incorrect).
Incorrect
Solution: C
Rapid stock market expansion increases the role of financial markets in economic policymaking, often at the expense of real-sector investments (Statement 1 – Correct).
Over-reliance on asset price appreciation (like rising stock or real estate values) instead of productivity-driven economic growth is a key feature of excessive financialisation (Statement 2 – Correct).
Increased household savings in bank deposits does not contribute to financialisation; instead, financialisation grows when savings are directed into capital markets rather than traditional savings instruments (Statement 3 – Incorrect).
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Question 4 of 5
4. Question
Consider the following statements about the exchange rate system:
- A floating exchange rate is determined purely by the demand and supply of the currency in the foreign exchange market.
- Fixed exchange rate systems are maintained by central banks through direct intervention.
- Depreciation of a currency leads to cheaper imports and more expensive exports.
- A strong domestic currency can increase the trade deficit if exports become more expensive.
How many of the above statements are correct?
Correct
Solution: C
Statement 3 is incorrect.
Floating exchange rates are market-driven, while fixed exchange rates require central bank intervention. Currency depreciation makes exports cheaper but makes imports expensive, not the other way around. A strong currency can lead to a trade deficit because it makes exports more costly and imports cheaper, discouraging domestic production.
What is Exchange Rate?
- The exchange rate is the value of one currency in terms of another, determining how much domestic currency is needed to buy one unit of foreign currency.
- Exchange rates fluctuate based on demand and supply in the currency market, influenced by trade, investments, and monetary policies.
How Does Exchange Rate Work?
- Demand-Supply Dynamics: If demand for the US dollar rises more than the rupee, the dollar strengthens, and the rupee weakens.
- Trade and Investments: Higher US imports, foreign investments, and capital outflows reduce rupee demand, depreciating its value.
- Inflation & Interest Rates: Higher inflation or lower interest rates in India reduce investor confidence, leading to rupee depreciation.
Incorrect
Solution: C
Statement 3 is incorrect.
Floating exchange rates are market-driven, while fixed exchange rates require central bank intervention. Currency depreciation makes exports cheaper but makes imports expensive, not the other way around. A strong currency can lead to a trade deficit because it makes exports more costly and imports cheaper, discouraging domestic production.
What is Exchange Rate?
- The exchange rate is the value of one currency in terms of another, determining how much domestic currency is needed to buy one unit of foreign currency.
- Exchange rates fluctuate based on demand and supply in the currency market, influenced by trade, investments, and monetary policies.
How Does Exchange Rate Work?
- Demand-Supply Dynamics: If demand for the US dollar rises more than the rupee, the dollar strengthens, and the rupee weakens.
- Trade and Investments: Higher US imports, foreign investments, and capital outflows reduce rupee demand, depreciating its value.
- Inflation & Interest Rates: Higher inflation or lower interest rates in India reduce investor confidence, leading to rupee depreciation.
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Question 5 of 5
5. Question
Consider the following effects of a rising Debt-to-GDP ratio:
- Higher risk of sovereign credit rating downgrades
- Increased inflation due to excessive government borrowing
- Enhanced investor confidence leading to higher capital inflows
How many of the above statements are incorrect?
Correct
Solution: A
Statement 1 is correct because a high Debt-to-GDP ratio raises concerns about a country’s repayment ability, leading to credit rating downgrades.
Statement 2 is correct as excessive government borrowing can lead to inflation if the central bank prints more money or if deficits increase aggregate demand.
Statement 3 is incorrect because a rising Debt-to-GDP ratio usually reduces investor confidence, leading to capital outflows rather than inflows.
About Debt-to-GDP Ratio:
- It represents the proportion of a country’s total debt to its GDP, indicating economic stability and repayment capacity.
- Formula:
What it represents?
- A higher ratio signals increased risk of default and financial instability.
- A lower ratio indicates better fiscal health and investor confidence.
- Debt sustainability depends on growth rates, fiscal deficit trends, and interest payments.
Limitations of Debt-to-GDP Ratio
- Does Not Reflect Debt Composition: Ignores internal vs. external debt dynamics.
- Fails to Consider Fiscal Policy: Does not capture spending efficiency or investments.
- No Direct Correlation with Default Risk: Some high-debt countries remain solvent due to economic strength.
Incorrect
Solution: A
Statement 1 is correct because a high Debt-to-GDP ratio raises concerns about a country’s repayment ability, leading to credit rating downgrades.
Statement 2 is correct as excessive government borrowing can lead to inflation if the central bank prints more money or if deficits increase aggregate demand.
Statement 3 is incorrect because a rising Debt-to-GDP ratio usually reduces investor confidence, leading to capital outflows rather than inflows.
About Debt-to-GDP Ratio:
- It represents the proportion of a country’s total debt to its GDP, indicating economic stability and repayment capacity.
- Formula:
What it represents?
- A higher ratio signals increased risk of default and financial instability.
- A lower ratio indicates better fiscal health and investor confidence.
- Debt sustainability depends on growth rates, fiscal deficit trends, and interest payments.
Limitations of Debt-to-GDP Ratio
- Does Not Reflect Debt Composition: Ignores internal vs. external debt dynamics.
- Fails to Consider Fiscal Policy: Does not capture spending efficiency or investments.
- No Direct Correlation with Default Risk: Some high-debt countries remain solvent due to economic strength.
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