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Generate QuizEconomics – Medium Level – GK Questions
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The Insolvency and Bankruptcy Code (IBC), 2016, shifted the insolvency resolution paradigm in India from a 'debtor-in-possession' model to a '___-in-control' model.
- Okun's
- health and education
- Veblen
- creditor
Answer: creditor
Prior to the IBC, defaulting promoters retained control of their companies while restructuring debts, often leading to endless delays. The IBC empowers the Committee of Creditors (CoC) to take control of the defaulting entity, allowing them to either approve a resolution plan to revive the company or liquidate its assets within a strict 330-day timeline.
Under the Prompt Corrective Action (PCA) framework, the RBI imposes strict restrictions on a bank's dividend distribution, branch expansion, and management compensation if it breaches specific capital and NPA thresholds.
- True
- False
Answer: True
The PCA framework acts as an early intervention mechanism. When a bank's financial health deteriorates (e.g., high Net NPAs, low Capital to Risk-Weighted Assets Ratio, or negative Return on Assets), the RBI invokes PCA to restrict risky activities and force the bank to focus on recapitalization, provisioning, and cleaning up its balance sheet.
When the RBI wants to inject durable liquidity into the banking system and lower long-term interest rates, it conducts Open Market Operations (OMOs) by ___ government securities.
- purchasing (or buying)
- 40
- lending (or credit)
- tangent
Answer: purchasing (or buying)
When the RBI purchases government bonds from the open market, it pays for them by crediting the reserves of commercial banks. This infusion of permanent cash increases the banks' lendable resources, expands the money supply, and drives down bond yields, thereby lowering long-term borrowing costs for the economy.
The Monetary Policy Committee (MPC) of the RBI, constituted in 2016, consists of 6 members, with the RBI Governor having a casting vote in the event of a tie.
- True
- False
Answer: True
The MPC was established under the amended RBI Act to bring transparency and collective wisdom to interest rate decisions. It comprises three officials from the RBI (including the Governor as the ex-officio Chairperson) and three external experts nominated by the Government of India. The Governor has a second or casting vote if the committee is evenly split.
The proceeds collected from a 'Surcharge' on income tax are distributed between the Central Government and the State Governments based on the Finance Commission's recommendations.
- True
- False
Answer: False
Both Cesses and Surcharges are levied by the Centre for specific purposes or on high-income groups, respectively. Crucially, the Constitution dictates that the proceeds from both Cesses and Surcharges are retained entirely by the Central Government and do not form part of the divisible pool of taxes shared with the States.
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003, was primarily enacted to:
- Ensure equitable distribution of taxes between the Centre and States
- Institutionalize financial discipline, reduce fiscal deficits, and manage public debt
- Regulate the stock market and prevent insider trading
- Establish a national pension system for government employees
Answer: Institutionalize financial discipline, reduce fiscal deficits, and manage public debt
The FRBM Act mandates the government to lay out a roadmap for reducing fiscal and revenue deficits, ensuring inter-generational equity in debt management. It aims to bring transparency and accountability to the fiscal management process, though its rigid targets have occasionally been relaxed during severe macroeconomic shocks or pandemics.
The Primary Deficit is calculated by subtracting ___ payments from the total Fiscal Deficit, thereby showing the government's current borrowing requirement exclusive of past debt obligations.
- Solow (or Solow-Swan)
- gig
- short
- interest
Answer: interest
The Fiscal Deficit represents the total borrowing needs of the government. However, a large portion of this borrowing is often just to pay the interest on accumulated past debts. By subtracting interest payments, the Primary Deficit reveals how much the government is borrowing purely to fund its current fiscal year's expenditures.
A 'Revenue Deficit' implies that the government is borrowing money to finance its routine, day-to-day consumption expenditures rather than for creating productive assets.
- True
- False
Answer: True
Revenue Deficit occurs when the government's net revenue expenditure exceeds its net revenue receipts. Since this deficit is used to fund current consumption (like salaries, subsidies, and pensions) rather than capital formation, it is considered highly undesirable as it adds to the debt burden without generating future income streams to repay it.
Which of the following is classified as a 'Capital Receipt' in the Union Budget of India?
- Income Tax collections
- Dividends from Public Sector Undertakings
- Recovery of loans granted to State Governments
- Grants received from foreign governments
Answer: Recovery of loans granted to State Governments
Capital receipts are those government receipts that either create a liability (like fresh borrowings) or cause a reduction in the government's assets (like the recovery of past loans or disinvestment of PSUs). Tax revenues and dividends are 'Revenue Receipts' because they neither create liabilities nor reduce core assets.
The short-run Phillips Curve illustrates a direct, positive relationship between the rate of inflation and the rate of unemployment.
- True
- False
Answer: False
The short-run Phillips Curve demonstrates an *inverse* (negative) relationship between inflation and unemployment. It suggests that policymakers face a trade-off: stimulating the economy to lower unemployment will inevitably lead to higher inflation, while contracting the economy to fight inflation will cause unemployment to rise.
The Consumer Price Index (CPI) assigns the highest weightage to the 'Food and Beverages' category, whereas the Wholesale Price Index (WPI) assigns the highest weightage to 'Manufactured Products'.
- True
- False
Answer: True
This structural difference reflects the target audience of each index. The CPI measures retail inflation affecting the common man, for whom food constitutes the largest share of the household budget (over 45% weight). Conversely, the WPI tracks wholesale transaction prices, where manufactured goods dominate the basket (over 64% weight).
The National Statistical Office (NSO), which currently releases India's GDP and IIP data, was formed by merging which two organizations?
- CSO and NSSO
- RBI and SEBI
- NITI Aayog and Planning Commission
- OEA and Labour Bureau
Answer: CSO and NSSO
In 2019, the Government of India merged the Central Statistics Office (CSO) and the National Sample Survey Office (NSSO) to form the unified National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI). This was done to streamline data collection, eliminate discrepancies, and improve the overall quality of national statistics.
The GDP Deflator is a measure of the level of prices of all new, domestic goods and services in an economy, and it is calculated as the ratio of ___ GDP to Real GDP multiplied by 100.
- Production
- Consumer Price Index (CPI)
- Countercyclical
- Nominal
Answer: Nominal
The GDP Deflator reflects the price changes of all domestically produced goods and services, making it a broader and more comprehensive measure of inflation than the CPI or WPI. By dividing Nominal GDP (calculated at current year prices) by Real GDP (calculated at base year prices), it isolates the exact impact of inflation on economic growth.
Transfer payments received by the government, such as old-age pensions and unemployment benefits, are included in the calculation of National Income.
- True
- False
Answer: False
Transfer payments are unilateral, one-way payments where no current productive service or good is rendered in return. Since National Income only accounts for the value of newly produced goods and services (factor incomes), including transfer payments would result in double counting and misrepresent the actual productive capacity of the economy.
Gross National Product (GNP) is calculated by adding ___ to the Gross Domestic Product (GDP) of a country.
- durable (or capital / physical)
- Net Factor Income from Abroad (NFIA)
- multiplier
- product
Answer: Net Factor Income from Abroad (NFIA)
While GDP measures the value of goods and services produced within a country's geographical boundaries regardless of nationality, GNP measures the total value produced by the residents of a country, both domestically and abroad. Therefore, GNP = GDP + (Factor income earned by domestic residents abroad - Factor income earned by foreign residents domestically).
Which of the following is NOT one of the eight core industries used to calculate the Index of Industrial Production (IIP)?
- Coal
- Cement
- Textiles
- Refinery Products
Answer: Textiles
The eight core industries are Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement, and Electricity. Textiles, despite being a major employment-generating sector, is not classified as a 'core' infrastructure industry for the purpose of the IIP's leading indicator metrics.
The Index of Industrial Production (IIP) currently uses ___ as its base year for calculating the growth rates of industrial output in India.
- 2011-12
- construction (or real estate / infrastructure)
- multiplier
- notice
Answer: 2011-12
The base year for the IIP was updated from 2004-05 to 2011-12 in May 2017 to align it with the base years of other major macroeconomic indicators like the GDP and WPI. This update also revised the item basket to better reflect the current structure of the Indian manufacturing and industrial sectors.
Under the current FDI policy, foreign direct investment up to 100% is permitted under the automatic route for the defense sector, without requiring prior government approval.
- True
- False
Answer: False
While the FDI limit in the defense sector was raised to 100%, the automatic route is only permitted up to 74%. Any FDI beyond 74% (up to 100%) requires prior approval from the Government of India through the Department for Promotion of Industry and Internal Trade (DPIIT), primarily on national security grounds.
In the revised definition of Micro, Small, and Medium Enterprises (MSMEs) notified in 2020, what is the maximum investment limit in plant and machinery for a 'Micro' enterprise in the manufacturing sector?
- Rs. 1 Crore
- Rs. 5 Crore
- Rs. 10 Crore
- Rs. 25 Crore
Answer: Rs. 1 Crore
The 2020 revision eliminated the distinction between manufacturing and service sectors and significantly hiked the investment and turnover limits. A Micro enterprise is now defined as one where the investment in plant and machinery or equipment does not exceed Rs. 1 Crore, and the annual turnover does not exceed Rs. 5 Crore.
The National Food Security Act (NFSA), 2013, legally entitles up to ___% of the rural population to receive highly subsidized food grains under the Targeted Public Distribution System (TPDS).
- isoquant
- Refinery Products
- 75
- Tarapore
Answer: 75
The NFSA, 2013, marks a paradigm shift from a welfare approach to a rights-based approach to food security. It mandates coverage of up to 75% of the rural population and 50% of the urban population (averaging about 67% of India's total population), providing them with 5 kg of food grains per person per month at heavily subsidized prices.