Create a custom practice set
Pick category, difficulty, number of questions, and time limit. Start instantly with your own quiz.
Generate QuizEconomics – GK Questions
Free practice for SSC, UPSC, Banking & Railway exams. No login required.
Under the WTO's Agreement on Subsidies and Countervailing Measures (ASCM), 'Export Subsidies' (subsidies contingent upon export performance) are generally classified as prohibited 'Red Light' subsidies.
- True
- False
Answer: True
The WTO strictly prohibits export subsidies because they are explicitly designed to distort global trade by artificially lowering the price of a country's goods in foreign markets, harming competitors in other nations. If a country is found guilty of providing a prohibited Red Light subsidy, it must withdraw it immediately, or the affected countries can impose retaliatory countervailing duties.
The General Agreement on Trade in Services (GATS) defines four 'modes of supply' for international trade in services. Which mode involves a consumer traveling to the supplier's country to consume the service (e.g., medical tourism)?
- Mode 1: Cross-border supply
- Mode 2: Consumption abroad
- Mode 3: Commercial presence
- Mode 4: Presence of natural persons
Answer: Mode 2: Consumption abroad
Mode 2 (Consumption Abroad) covers scenarios where the buyer moves to the seller's territory to receive the service, such as an Indian patient traveling to the US for surgery, or a student studying at a foreign university. Mode 1 is remote delivery (telemedicine), Mode 3 is setting up a foreign branch (FDI in hospitals), and Mode 4 is the professional traveling to the client (IT consultants flying abroad).
The ___ Curve illustrates the theoretical relationship between tax rates and total tax revenue, suggesting that beyond a certain optimal point, excessively high tax rates will actually reduce total revenue by discouraging work and encouraging evasion.
- Skewflation
- Laffer
- Okun's
- India Debt Resolution Company Ltd (IDRCL)
Answer: Laffer
Arthur Laffer's famous curve starts at zero revenue (0% tax rate), rises to a peak (the revenue-maximizing rate), and then slopes back down to zero (at a 100% tax rate, no one would work in the formal economy). It is a foundational concept in supply-side economics, arguing that sometimes cutting tax rates can paradoxically increase total government revenue by stimulating massive economic activity.
If the tax buoyancy coefficient is exactly equal to 1, it implies that tax revenues are growing at the exact same rate as the nominal Gross Domestic Product (GDP), assuming no discretionary changes in tax rates.
- True
- False
Answer: True
Tax buoyancy measures the automatic responsiveness of the tax system to economic expansion. A buoyancy of 1 means the tax-to-GDP ratio remains perfectly constant over time. A buoyancy greater than 1 indicates a highly progressive and efficient tax system where revenues grow faster than the economy, providing the government with increasing fiscal space without needing to hike tax rates.
Which of the following is an example of a Direct Tax?
- Goods and Services Tax (GST)
- Customs Duty on imported electronics
- Corporation Tax on the net profits of a company
- Excise Duty on petrol and diesel
Answer: Corporation Tax on the net profits of a company
A direct tax is levied directly on the income or wealth of the person or entity that ultimately bears the burden of the tax; it cannot be passed on to someone else. Corporation tax is paid directly by the company out of its profits. GST, Customs, and Excise are indirect taxes, where the initial payer (the business) shifts the tax burden to the final consumer via higher prices.
Simon Kuznets identified medium-term economic cycles lasting 15 to 25 years, which are primarily driven by demographic shifts and massive investments in ___ and housing infrastructure.
- construction (or real estate / infrastructure)
- Net Factor Income from Abroad (NFIA)
- street vendors
- Green
Answer: construction (or real estate / infrastructure)
Kuznets swings are closely tied to population growth, migration patterns, and the lifespan of physical infrastructure. When a generation enters its prime household-forming years, it triggers a massive, multi-decade boom in residential construction and related infrastructure, which eventually peaks, saturates, and enters a long period of decline before the next demographic wave begins.
Kondratiev Waves (or K-Waves) are hypothesized long-term economic cycles lasting approximately 40 to 60 years, typically driven by major technological innovations like the steam engine, electrification, or the internet.
- True
- False
Answer: True
Named after Russian economist Nikolai Kondratiev, these super-cycles suggest that capitalist economies experience prolonged periods of sectoral expansion followed by equally long periods of stagnation and correction. Each wave is fundamentally anchored to a paradigm-shifting technological revolution that completely restructures global production, infrastructure, and labor markets.
The 'Real Business Cycle' (RBC) theory argues that macroeconomic fluctuations and recessions are primarily caused by:
- Irrational exuberance and sudden shifts in aggregate demand
- Exogenous real shocks, such as changes in technology, productivity, or commodity prices, rather than monetary factors
- Deliberate manipulation of interest rates by the central bank
- Systemic failures in the commercial banking sector
Answer: Exogenous real shocks, such as changes in technology, productivity, or commodity prices, rather than monetary factors
Unlike Keynesian models that blame recessions on drops in demand or sticky wages, RBC theory assumes markets are always perfectly competitive and clear. It posits that booms and busts are simply the efficient, rational responses of workers and firms to real external shocks (like a massive oil price spike or a breakthrough in AI technology) altering the economy's productive capacity.
To protect consumers from predatory lending practices and illegal loan apps, the RBI issued strict guidelines in 2022 regulating ___-to-___ (P2P) lending platforms and digital lending apps, mandating that all loan disbursals must flow directly into the borrower's bank account.
- street vendors
- Peer (or P2P)
- Governing Council
- Lewis
Answer: Peer (or P2P)
The proliferation of unregulated digital lending apps led to severe issues like exorbitant hidden interest rates, data theft, and coercive recovery tactics. The RBI's guidelines clamped down on this by ensuring that Lending Service Providers (LSPs) cannot hold or pool customer funds, and that only regulated entities (Banks/NBFCs) can actually disburse the credit directly to the end consumer.
Non-Banking Financial Companies (NBFCs) whose asset size is Rs. 500 crore or more are classified by the RBI as 'Systemically Important' (NBFC-ND-SI) because their distress could potentially trigger a contagion effect across the broader financial system.
- True
- False
Answer: True
Because large NBFCs are deeply interconnected with commercial banks (borrowing heavily from them) and retail investors, the failure of a massive NBFC could collapse the credit market. Consequently, the RBI subjects these Systemically Important NBFCs to much stricter prudential norms, capital adequacy requirements, and liquidity coverage ratios, similar to those applied to commercial banks.
Many State Governments in India maintain a 'Consolidated Sinking Fund' (CSF). What is the primary purpose of this fund?
- To provide emergency relief during natural disasters like floods and earthquakes
- To accumulate resources over time specifically for the redemption of the state's outstanding open market borrowings
- To finance the construction of new state capital cities
- To guarantee the pension liabilities of state government employees
Answer: To accumulate resources over time specifically for the redemption of the state's outstanding open market borrowings
The CSF acts as a mandatory sinking reserve. States are required to contribute a small percentage of their outstanding debt to this fund annually, which is then invested in safe government securities. When a state's bond matures, it uses the accumulated corpus in the CSF to repay the principal, preventing sudden, massive spikes in the state's fiscal deficit in a single year.
To meet temporary mismatches between the government's receipts and payments, the RBI provides short-term, interest-bearing loans to the Central and State governments known as ___ and ___ Advances (WMA).
- Ways and Means
- increase
- first
- 1992
Answer: Ways and Means
WMA is a crucial cash management tool. It is not a source of long-term deficit financing; rather, it's an overdraft facility that smooths out daily or weekly liquidity bumps (e.g., tax collections are delayed, but salary payouts are due). The government must clear the WMA balance quickly, and crossing the limit forces the government to issue market bonds or cut spending.
The GDP Deflator is mathematically classified as a Laspeyres index because it uses a fixed basket of goods from the base year to measure price changes in the current year.
- True
- False
Answer: False
The GDP Deflator is actually a Paasche index because it uses the quantities of the *current year* as its weights, reflecting the actual basket of goods and services produced in that specific period. In contrast, the CPI is typically a Laspeyres index, which uses a fixed, historical base-year basket, which can lead to an overestimation of inflation due to the substitution bias.
Which of the following statements correctly differentiates the Wholesale Price Index (WPI) from the Consumer Price Index (CPI) in India?
- WPI includes services like housing and education, while CPI only tracks physical goods
- CPI includes services and tracks retail inflation affecting consumers, while WPI tracks only physical goods at the wholesale level
- WPI is published by the NSO, while CPI is published by the Office of the Economic Adviser
- WPI is used as the anchor for the RBI's inflation-targeting monetary policy framework
Answer: CPI includes services and tracks retail inflation affecting consumers, while WPI tracks only physical goods at the wholesale level
The most critical structural difference is that the WPI completely ignores the services sector, which constitutes over 50% of India's GDP. The CPI captures retail price changes for both goods and services (like healthcare, education, and housing). Furthermore, since 2014, the RBI uses CPI (Combined), not WPI, as the official anchor for its inflation-targeting mandate.
To prevent the pro-cyclicality of the financial system, Basel III introduced a ___ Capital Buffer, which requires banks to hold extra capital during periods of excessive credit growth that can be released during an economic downturn.
- 1965
- Consumer Price Index (CPI)
- Countercyclical
- Triffin
Answer: Countercyclical
Banks naturally lend too much during economic booms (fueling asset bubbles) and stop lending during busts (worsening recessions). The Countercyclical Capital Buffer forces regulators to mandate extra capital reserves when credit is expanding dangerously fast. When the bubble bursts and the economy slows, this buffer is released, giving banks the capital needed to continue lending and support the recovery.
Under Basel III norms, Tier 2 Capital includes instruments like subordinated debt and hybrid capital, which are considered less secure than Tier 1 capital and primarily serve to absorb losses in the event of a bank's liquidation.
- True
- False
Answer: True
Tier 2 capital is supplementary capital. In the event of a bank failure, Tier 1 capital absorbs losses first to keep the bank running (going-concern). If the bank is inevitably winding down (gone-concern), Tier 2 instruments are then written down or converted to equity to protect depositors and senior creditors from taking total losses.
The Basel Committee on Banking Supervision (BCBS), which formulates the global standards for bank capital and liquidity, is headquartered at the Bank for International Settlements (BIS) in:
- New York, USA
- London, UK
- Basel, Switzerland
- Frankfurt, Germany
Answer: Basel, Switzerland
The BCBS was founded in 1974 by central bank governors of the G10 countries. Operating from Basel, Switzerland, it serves as the primary global standard-setter for the prudential regulation of banks, aiming to enhance financial stability worldwide by ensuring that banks maintain adequate capital buffers to absorb unexpected shocks.
While the 'Tragedy of the Commons' describes the overuse of a shared resource, the 'Tragedy of the ___' describes a situation where too many owners have the right to exclude others from using a resource, leading to its severe underutilization.
- arbitrage (or resale)
- Treasury
- anticommons
- countervailing
Answer: anticommons
Coined by Michael Heller, this concept occurs when property rights are excessively fragmented. For example, if a single piece of land requires the unanimous consent of 50 different heirs to be developed into a hospital, the project will likely fail, and the land will sit empty. It highlights the economic dangers of having too many veto players and overlapping intellectual property patents.
A Pigouvian subsidy is a government payment designed to encourage the production or consumption of a good that generates positive externalities, such as vaccinations or renewable energy.
- True
- False
Answer: True
Just as a Pigouvian tax corrects the overproduction of harmful goods (negative externalities), a Pigouvian subsidy corrects the underproduction of beneficial goods. Because the free market ignores the broader societal benefits of things like education or solar panels, the subsidy lowers the effective price, aligning private incentives with the socially optimal level of consumption.
According to the Coase Theorem, private bargaining can efficiently resolve the problem of externalities (like pollution) without government intervention, provided that:
- The government imposes a strict Pigouvian tax
- Property rights are clearly defined and transaction costs are negligible or zero
- The externality affects more than 100 individuals
- The polluting firm is a state-owned monopoly
Answer: Property rights are clearly defined and transaction costs are negligible or zero
Ronald Coase argued that if people can negotiate cheaply and it is legally clear who owns the right to the resource (e.g., the right to clean air vs. the right to pollute), the affected parties will naturally strike a mutually beneficial deal to internalize the externality. However, in reality, high transaction costs (lawyers, organizing millions of citizens) usually make this impossible, necessitating state regulation.