IAS Prelims 2014: General Studies I ( Related to Economy with explanations)


1. In the context of food and nutritional security of India, enhancing the 'Seed Replacement Rates' of various crops helps in achieving the food production targets of the future. But what is/are the constraint/ constraints in its wider / greater implementation?

1. There is no National Seeds Policy in place.
2. There is no participation of private sector seed companies in the supply of quality seeds of vegetables and planting materials of horticultural crops.
3. There is a demand-supply gap regarding quality seeds in case of low value and high volume crops.

Select the correct answer using the code given below.
(a) 1 and 2
(b) 3 only
(c) 2 and 3
(d) None
Ans. (b)
Explanation: The National Seeds Policy 2002, clearly emphasizes that “ It has become evident that in order to achieve the food production targets of the future, a major effort will be required to enhance the seed replacement rates of various crops.
The Planning Commission in its Mid-Term Appraisal of the 10th Five Year Plan (2002-07) has concluded :
“Despite a huge institutional framework for seed production both in the public and private sector, availability of good quality seeds continues to be a problem for the farmers.”.
2. Which of the following organizations brings out the publication known as 'World Economic Outlook'?

(a) The International Monetary Fund
(b) The United Nations Development Programme
(c) The World Economic Forum
(d) The World Bank
Explanation: The World Economic Outlook (WEO) database contains selected macroeconomic data series from the statistical appendix of the World Economic Outlook Report, which presents the International Monetary Fund (IMF) staff's analysis and projections of economic developments at the global level, in major country groups and in many individual countries. The WEO is released in April and September/October each year.
3. With reference to Union Budget, which of the following, is/are covered under Non-Plan Expenditure?

1. Defence -expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidiess,

Select the correct answer using the code given below.
(a) 1 only
(b) 2 nd 3 only
(c) 1, 2, 3 and 4
(d) None
Ans. (c)
Explanation: Non-Plan expenditure covers all expenditure of Government not included in the Plan. It may either be revenue expenditure or capital expenditure. Part of the expenditure is obligatory in nature e.g. interest payments, pensionary charges and statutory transfers to State and Union Territory Governments. A part of the expenditure relates to essential functions of the State, e.g. defence, internal security, external affairs and revenue collection. Major subsidies i.e.  Fertiliser subsidy, Food subsidy and Petroleum subsidy are also non-plan expenditure.
4. What are the benefits of implementing the 'Integrated Watershed Development Programme'?

1. Prevention of soil runoff
2. Linking the country's perennial rivers with seasonal rivers
3. Rainwater harvesting and recharge of groundwater table
4. Regeneration of natural vegetation

Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 2, 3 and 4 only
(c) 1, 3 and 4 only  
(d) 1, 2, 3 and 4
Ans. (c)
Explanation: The main objectives of the IWMP are to restore the ecological balance by harnessing, conserving and developing degraded natural resources such as soil, vegetative cover and water.  The outcomes are  prevention of soil run-off, regeneration of natural vegetation, rain water harvesting and recharging of the ground water table.  This enables  multi-cropping and the introduction of diverse agro-based activities, which help to provide sustainable livelihoods to the people residing in the watershed area.

5. Which of the following are associated with 'Planning' in India?

1. The Finance Commission  
2. The National Development Council
3.The Union Ministry of Rural Development
4.The Union Ministry of Urban Development
5. The Parliament

Select the correct answer using the code given below.
(a)1, 2 and 5 only
(b) 1, 3 and 4 only
(c) 2 and 5 only
(d) 1, 2, 3, 4 and 5
Answer. C
 Explanation: The Finance Commission makes recommendations regarding the sharing of Union taxes, principles governing Grants-in-aid to States and transfer of resources to local bodies.
The draft of the planning approach paper is first considered and discussed in the meeting of the full Planning Commission, and then by the union Cabi­net and finally by the NDC. After the approval of the NDC, it is placed before the Parliament.

6. The sales tax you pay while purchasing a toothpaste is a

(a) tax imposed by the Central Government
(b) tax imposed by the Central Government but collected by the State Government
(c) tax imposed by the State Government but collected by the Central Government
(d) tax imposed and collected by the State Government
Explanation: Central Sales Tax (CST) is a tax on sales of goods levied by the Central Government of India. CST is applicable only in the case of inter-state sales and not on sales made within the state or import/export of sales.
Inter-state sale is when a sale or purchase constitutes movement of goods from one state to another. Accordingly, consignments to agents or transfers of goods to branch or other offices is not a sale as per the CST Act
CST is payable in the state where the goods are sold and movement commences. The tax collected is retained by the state in which the tax is collected. CST is administered by Sales Tax authorities of each state. Thus, the State Government Sales Tax officer who assesses and collects local (state) sales tax also assesses and collects CST.
Sales Tax is a tax, levied on the sale or purchase of goods. There are two kinds of Sales Tax i.e. Central Sales Tax, imposed by the Centre and Sales Tax, imposed by each state. The sales tax  paid while purchasing a toothpaste may fall in either categories.
7. What does venture capital mean?

(a) A short-term capital provided to industries
(b) A long-term start-up capital provided to new entrepreneurs
(c) Funds provided to industries at times of incurring losses
(d) Funds provided for replacement and renovation of industries
Ans. (b)
Explanation: Capital provided by investors to startup firms with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.
8. The main objective of the 12th Five-Year Plan is

(a) inclusive growth and poverty reductions
(b) inclusive and sustainable growth
(c) sustainable and inclusive growth to reduce unemployment
(d) faster, sustainable and more inclusive growth.
Ans. (d)
Explanation: The stated vision of the 12th Plan Document is “of India moving forward in a way that would ensure a broad-based improvement in living standards of all sections of the people through a growth process which is faster than in the past, more inclusive and also more environmentally sustainable”.
9. With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

1. Balance of trade
2. Foreign assets  
3. Balance of invisibles
4. Special Drawing Rights
Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3
(c) 1 and 3  
(d) 1, 2 and 4
Ans. (c)
Explanation: Under current account of the BoP, transactions are classified into merchandise balance of trade (exports and imports) and invisibles. Invisible transactions are further classified into three categories, namely (a) Services-travel, transportation, insurance, Government not included elsewhere (GNIE) and miscellaneous (such as, communication, construction, financial, software, news agency, royalties, management and business services); (b) Income; and (c) Transfers (grants, gifts, remittances, ets.) which do not have any quid pro quo.
10. The terms 'Marginal Standing Facility Rate' and 'Net Demand and Time Liabilities', sometimes appearing in news, are used in relation to

(a) banking operations
(b) communication networking
(e) military strategies
(d) supply and demand of agricultural products
Ans. (a)
Explanation: Marginal Standing Facility (MSF)  rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. This came into effect in may 2011. Under the Marginal Standing Facility (MSF), currently banks avail funds from the RBI on overnight basis against their excess statutory liquidity ratio (SLR) holdings. Additionally, they can also avail funds on overnight basis below the stipulated SLR up to 2.5% of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of second preceding fortnight. 
Demand liabilities are those liabilities which are to be repaid at demand (examples: current deposits, savings deposits as per formula, other deposits, inter-bank deposits, etc.). Time liabilities are those liabilities which are to be repaid on expiry of a fixed period (examples: fixed deposits, recurring deposits, etc.).  NDTL (Net Demand & Time Liabilities) = DTL - a bank's deposits with other banks.
11. What is/are the facility/facilities the beneficiaries can get from the services of Business Correspondent (Bank Saathi) in branchless areas?

1. It enables the beneficiaries to draw their subsidies and social security benefits in their villages.
2. It enables the beneficiaries in the rural areas to make deposits and withdrawals.

Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer. C

Explanation: Business Correspondent model is an innovative, technology-based banking model is giving people in remote areas of India access to formal financial institutions.

The scope of activities to be undertaken by the Business Correspondents will include (i) disbursal of small value credit,  (ii) recovery of principal / collection of interest  (iii) collection of small value deposits (iv) sale of micro insurance/ mutual fund products/ pension products/ other third party products and  (v) receipt and delivery of small value remittances/ other payment instruments.
The main objectives of the project were (1) to increase the outreach of financial services to the poorest of the poor by using technology-based solutions, (2) to minimize the occurrence of fraudulent payments, and (3) ultimately, to achieve total financial inclusion through the use of smartcards.
12. In the context of Indian economy; which of the following is/are the purpose/purposes of 'Statutory Reserve Requirements'?
1. To enable the Central Bank to control the amount of advances the banks can create
2. To make the people's deposits with banks safe and liquid
3. To prevent the commercial banks from making excessive profits
4. To force the banks to have sufficient vault cash to meet their day-to-day requirements

Select the correct answer using the code given below.
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2, 3 and 4
Ans. (b)
Explanation: The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). In simple words, it is the percentage of total deposits banks have to invest in government bonds and other approved securities. A SLR bond also qualifies for the portfolio maintained by banks to meet the liquidity requirement.
The main objectives for maintaining the Statutory Liquidity Ratio are the following:
(i) Statutory Liquidity Ratio is maintained in order to control the expansion of Bank Credit. By changing the level of Statutory Liquidity Ratio, Reserve bank of India can increase or decrease bank credit expansion.
(ii) Statutory Liquidity Ratio in a way ensures the solvency of commercial banks.
(iii) By determining Statutory Liquidity Ratio, Reserve Bank of India, in a way, compels the commercial banks to invest in government securities like government bonds.
If any Indian Bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay penalty to Reserve Bank of India. The defaulter bank pays penal interest at the rate of 3% per annum above the Bank Rate, on the shortfall amount for that particular day.
The RBI can increase the Statutory Liquidity Ratio to contain inflation, suck liquidity in the market, to tighten the measure to safeguard the customers money. In a growing economy banks would like to invest in stock market, not in Government Securities or Gold as the latter would yield less returns. One more reason is long term Government Securities (or any bond) are sensitive to interest rate changes. But in an emerging economy interest rate change is a common activity.
13. If the interest rate is decreased in an economy, it will

(a) decrease the consumption expenditure in the economy
(b) increase the tax collection of the Government
(c) increase the investment expenditure in the economy
(d) increase the total savings in the economy
Ans. (c)
Explanation: Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment. This leads to higher aggregate demand and economic growth. This increase in aggregate demand may also cause inflationary pressures.

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Thursday, 01st Jan 1970, 12:00:00 AM