Economics – Medium Level – GK Questions

Answer: True

Unlike incremental budgeting, which assumes past expenditures are necessary, ZBB requires a rigorous cost-benefit analysis of all proposed programs, regardless of their historical funding. While theoretically highly efficient for eliminating wasteful, obsolete schemes, it is extremely resource-intensive and time-consuming, which is why it is rarely implemented in its purest form across entire national governments.

Answer: External

Historically, banks used internal benchmarks like the Base Rate or MCLR, which they manipulated to delay passing on the benefits of RBI rate cuts to consumers. By mandating an External Benchmark (like the Repo Rate or T-bill yield), the RBI ensured that any change in the central bank's policy rate is automatically and quickly transmitted to the end borrower's EMI.

Answer: Alfred Marshall

Alfred Marshall introduced the concept of consumer surplus in his seminal work 'Principles of Economics' (1890). It is a crucial tool in welfare economics used to quantify the net benefit or utility consumers derive from market transactions, and it helps policymakers evaluate the welfare impacts of taxes, subsidies, and price controls.

Answer: Veblen

Named after sociologist Thorstein Veblen, these goods violate the standard law of demand not due to poverty (like Giffen goods), but due to 'conspicuous consumption.' For items like ultra-luxury watches or designer handbags, a higher price actually enhances their snob appeal and exclusivity, driving up demand among the ultra-wealthy.

Answer: False

India participated in the RCEP negotiations for years but ultimately decided to opt-out and did not sign the agreement in 2020. The primary concerns were that a massive reduction in tariffs would lead to a flood of cheap manufactured goods from China and dairy/agricultural products from Australia/New Zealand, which could severely damage domestic Indian industries and farmers.

Answer: An FTA eliminates internal tariffs but members retain individual external tariffs, whereas a Customs Union adopts a common external tariff

In an FTA (like NAFTA/USMCA), members trade freely among themselves but set their own tariffs against non-members. In a Customs Union (like the early EU or Mercosur), members not only eliminate internal tariffs but also agree on a unified, common external tariff policy applied to all non-member nations, requiring a higher degree of political and economic integration.

Answer: Rules

Rules of Origin prevent 'trade deflection,' where a non-member country routes its exports through a low-tariff FTA member country to bypass higher tariffs. These rules typically mandate that a product must undergo a substantial transformation or meet a minimum value-addition threshold (e.g., 35% local content) within the FTA zone to claim duty-free benefits.

Answer: To identify and target beneficiaries for various welfare schemes like PMAY and NFSA based on multidimensional deprivations

Unlike the decadal Census which provides broad demographic data, the SECC 2011 is a comprehensive door-to-door survey capturing specific deprivation indicators (e.g., lack of a pucca house, no adult earning member, landlessness). Ministries use this granular data to ensure that welfare benefits accurately reach the most vulnerable households, bypassing the flawed BPL card system.

Answer: health and education

Earlier poverty lines (like the Lakdawala Committee) focused almost exclusively on the cost of acquiring a minimum number of calories. The Tendulkar Committee recognized that modern poverty involves deprivations beyond mere starvation. It adopted a uniform poverty line basket across rural and urban areas that explicitly accounted for the rising costs of essential health and education services.

Answer: False

REITs are regulated by the Securities and Exchange Board of India (SEBI), not the RBI. Furthermore, SEBI guidelines mandate that REITs must invest at least 80% of their assets in completed, revenue-generating commercial real estate (like office parks and malls), strictly limiting their exposure to risky, under-construction projects to protect retail investors.

Answer: Sharing the financial risk by having the government fund 40% of the project cost upfront and the developer arranging the remaining 60%

The HAM was introduced to revive the stalled PPP sector. Under previous models like BOT-Toll, developers bore all traffic risks, leading to massive defaults. Under HAM, the government provides 40% of the capital as milestone payments, reducing the developer's debt burden, while the developer collects fixed annuity payments from the government post-construction, entirely removing traffic revenue risk.

Answer: False

The AA ecosystem is fundamentally built on the principle of 'consent-based data sharing'. An AA acts merely as a blind pipe that transfers data from Financial Information Providers (FIPs, like banks) to Financial Information Users (FIUs, like lenders) only when the customer provides explicit, granular, and time-bound digital consent. The customer retains full control and can revoke this consent at any time.

Answer: NPCI (or National Payments Corporation of India)

NPCI is an umbrella organization for operating retail payments and settlement systems in India, initiated by the RBI and the Indian Banks' Association (IBA). UPI's architecture allows multiple bank accounts to be accessed through a single mobile application, merging the seamless features of wallets with the security and direct settlement of traditional banking networks.

Answer: The power to allocate discretionary funds to ministries and state governments

The Planning Commission was a powerful body that could allocate plan funds to various ministries and states, often using this financial leverage to enforce policy compliance. NITI Aayog was deliberately stripped of these financial allocation powers (which now rest with the Finance Ministry) to allow it to focus purely on policy design, strategic thinking, and monitoring without bureaucratic entanglements.

Answer: True

Historically, Finance Commissions used the 1971 census data for population, which penalized states that had successfully controlled their population since then. To address this, the 15th FC used the 2011 census but introduced the 'Demographic Performance' criterion, assigning higher weightage to states with lower fertility rates to ensure they are not financially disadvantaged for their progressive social policies.

Answer: To compensate states for any potential loss of revenue arising due to the implementation of GST for a transitional period of 5 years

When states surrendered their taxation rights to the Centre to form the unified GST market, they feared a loss of fiscal autonomy and revenue. To secure their agreement, the Centre guaranteed a 14% annual growth in their tax revenues for five years (2017-2022), funding this guarantee through a special Compensation Cess levied on luxury, sin, and coal products.

Answer: destination

GST is a destination-based consumption tax. When goods move from State A to State B, the Centre collects IGST. However, since the goods are consumed in State B, the Centre retains its share and transfers the remainder to State B (the destination state), ensuring that manufacturing states do not unfairly hoard the tax revenues generated by consuming states.

Answer: False

Article 266(1) forms the bedrock of parliamentary financial control. It explicitly states that no money can be withdrawn from the Consolidated Fund of India except under appropriation made by law. Therefore, the executive cannot spend a single rupee without the prior approval and legislative sanction of the Parliament via an Appropriation Act.

Answer: Vote on Account

A Vote on Account is a constitutional provision (Article 116) that allows the government to withdraw funds from the Consolidated Fund of India for a limited period (usually two months) to keep essential administrative and developmental machinery running. It only covers the estimated expenditure side, not the new taxation proposals, which are debated in the full budget later.

Answer: John Maynard Keynes

While Keynes published his revolutionary 'General Theory' in 1936, it was highly conceptual and literary. Hicks and Hansen formalized Keynes's ideas into the IS (Investment-Savings) and LM (Liquidity preference-Money supply) framework, creating the foundational macroeconomic model used to analyze the effects of fiscal and monetary policy on national income and interest rates.