Indian Economy MCQs

Notes:
The 11th Five Year Plan was implemented from 2007-2012, when Manmohan Sigh was India’s Prime Minster. The main slogan for the 11th FYP was “Faster and more inclusive growth”. The 11th FYP made special emphasis on Financial Inclusion, poverty reduction, empowerment through education and skill development etc.

Notes:
The correct answer is “Security Holdings.” Security holdings refer to investments in stocks, bonds, or other financial instruments, which are assets for a bank. In contrast, time deposits, borrowing from savings banks, and demand deposits are liabilities, as they represent money the bank owes to depositors. Commercial banks typically hold a diverse portfolio of securities to manage risk and generate income.

Notes:
Deficit financing involves government spending exceeding revenue, often used to stimulate economic growth. J.M. Keynes advocated for this approach during the Great Depression, arguing it could boost demand and reduce unemployment. While it can create jobs and mitigate economic downturns, it can also lead to increased national debt and inflation if mismanaged. Therefore, the statement “All are correct” is incorrect because it implies that deficit financing is universally beneficial without acknowledging potential drawbacks.

Notes:
If people prefer to keep cash with them rather than making deposits in banks, the impact on the Money Supply of the country will be as follows:
[B] The money supply of the country will decrease.
The reason for this is that money supply is typically categorized into different measures, with M1 and M2 being common examples. M1 includes currency (physical cash) in circulation and demand deposits (checking accounts). When people hold more cash and make fewer deposits, it reduces the amount of money in demand deposits, which are considered a part of the money supply. Therefore, if people choose to keep more cash on hand, it reduces the overall money supply in the country, leading to a decrease.

Notes:
Deflation benefits salary earners because it increases the purchasing power of money. When prices fall, the real value of wages rises, allowing consumers to buy more with the same income. In contrast, pensioners may suffer if their fixed incomes do not adjust for deflation, equity holders may see asset values decline, and debtors face higher real debt burdens. Historically, deflation has been linked to economic downturns, such as the Great Depression, where falling prices led to reduced consumer spending.

Notes:
If a person is dissatisfied with a decision made by the Banking Ombudsman, the next appellate authority to approach is the Deputy Governor of the Reserve Bank of India (RBI). The Banking Ombudsman operates under the Banking Ombudsman Scheme, which is a mechanism for resolving complaints against banks. The Deputy Governor oversees the functioning of the Ombudsman and can review the decisions made. This tiered approach ensures that consumers have multiple avenues for redressal within the banking regulatory framework.

Notes:
The correct answer is “Purchase of securities in the Open Markets.” This action is part of an expansionary monetary policy, aimed at increasing money supply and stimulating the economy, which can lead to inflation. In contrast, raising bank rates and reserve ratio requirements are contractionary measures that help control inflation by reducing money supply. Rationing of credit also limits borrowing, thus curbing inflationary pressures.

Notes:
The Government of India, in consultation with the Reserve Bank of India, finalized and introduced a new short-term instrument, known as Cash Management Bills, to meet the temporary cash flow mismatches of the Government. The Cash Management Bills are non-standard, discounted instruments issued for maturities less than 91 days and could be issued as and when need arises

Notes:
The correct answer is “Base Rate.” The Base Rate is the minimum interest rate set by a bank for lending to its customers. It serves as a benchmark for various loans and is influenced by factors like the central bank’s policy rate and the bank’s cost of funds. The Base Rate ensures that banks cover their costs and maintain profitability while lending. In many countries, including India, the Base Rate is a crucial component of monetary policy and financial stability.

Notes:
The indirect taxes like VAT etc are paid by everyone if they buy any product irrespective of financial conditions. Direct taxing is considered the most progressive taxing mechanisms because they justify the income levels of the people