Indian Economy MCQs
Indian Economy Multiple Choice Questions (MCQs) for SSC, State and all One Day Examinations of India. Objective Questions on Indian Economy for competitive examinations.
1. Where do banks keep liquid assets for Statutory Liquidity Ratio (SLR)?
[A] With themselves
[B] With the RBI
[C] With other banks
[D] In the market
Show Answer
Correct Answer: A [With themselves]
Notes:
Under the Statutory Liquidity Ratio (SLR), banks must maintain liquid assets such as cash, gold, or approved securities with themselves. SLR is mandated by the Reserve Bank of India under the Banking Regulation Act, 1949. The current SLR requirement is 18% of Net Demand and Time Liabilities (NDTL) as per RBI policy. These assets are not kept with the RBI.
2. In which five year plan self-reliance as an object of planning was emphasized?
[A] First Five Year Plan
[B] Second Five Year Plan
[C] Third Five Year Plan
[D] Fourth Five Year Plan
Show Answer
Correct Answer: D [Fourth Five Year Plan]
Notes:
The Fourth Five-year plan was implemented during 1969 to 1974 in India. The plan has twin objectives of “Growth with stability” and “progressive achievement of self-reliance”. It focused on the growth rate of Agriculture.
3. In September 1999, which organization established the Poverty Reduction and Growth Facility (PRGF) to make the objectives of poverty reduction and growth more central to lending operations in its poorest member countries?
[A] Asian Development Bank
[B] International Monetary Fund
[C] World Bank
[D] US Federal Bank
Show Answer
Correct Answer: B [International Monetary Fund]
Notes:
The Poverty Reduction and Growth Facility (PRGF) was set up by the International Monetary Fund in September 1999. Its objective was to formulate policies focusing on growth and poverty reduction.
4. Which of the following organizations provides Buffer Stock Financing Facility ?
[A] Reserve Bank of India
[B] Asian Development Bank
[C] International Monetary Fund
[D] World Bank
Show Answer
Correct Answer: C [International Monetary Fund]
Notes:
IMF in 1969 to provide financial assistance to members with a temporary balance of payments need arising from contributions to buffer stocks established under approved international commodity agreements
5. Which RBI action is a qualitative credit control instrument?
[A] RBI increases Reverse Repo rate in quarterly policy review
[B] RBI decreases the CRR rate in quarterly policy review
[C] RBI decreases the Bank rate in quarterly policy review
[D] RBI announces selective credit control in quarterly policy review
Show Answer
Correct Answer: D [RBI announces selective credit control in quarterly policy review]
Notes:
Selective credit control is a qualitative instrument used by RBI to restrict or channel credit to specific sectors. RBI issues directives and margin requirements under the Banking Regulation Act, 1949. It was used for commodities such as foodgrains, sugar, and cotton. Selective credit control is distinguished from quantitative tools like CRR, SLR, bank rate, and repo rates, which affect the overall money supply.
6. Which of the following statements best describes a progressive tax system?
[A] The tax rate decreases as the taxable amount increases
[B] The tax rate stays the same regardless of the taxable amount
[C] The tax rate increases as the taxable amount increases
[D] The tax rate is randomly determined
Show Answer
Correct Answer: C [The tax rate increases as the taxable amount increases]
Notes:
In a progressive tax system, higher income earners pay a higher tax rate compared to those who earn less. This is based on the assumption that individuals who earn more have the ability and the capacity to pay more taxes. Most income tax systems in the world are progressive, including the United States, Canada, and the United Kingdom.
7. Consider the following institutions:
- International Monetary Fund
- World Bank
- World Trade Organization
- US Treasury Department
- US Federal Bank
Which among the above institutions were a part of Washington Consensus?
[A] 1 & 2
[B] 1, 2 & 3
[C] 1, 2 & 4
[D] 1, 2, 3 & 4
Show Answer
Correct Answer: C [1, 2 & 4]
Notes:
The Washington Consensus refers to a set of economic policy prescriptions for developing countries, primarily focused on market-oriented reforms. It was formulated in the late 1980s and emphasizes trade liberalization, deregulation, and privatization. While the International Monetary Fund (IMF) and the World Bank are often associated with the Consensus due to their roles in providing financial assistance and policy advice, the World Trade Organization does not embody the trade liberalization aspect central to the Consensus. The US Treasury Department and the US Federal Bank are not a part of the Washington Consensus framework.
8. Narsimham Committee Report 1991 was related to which of the following ?
[A] Agriculture Reforms
[B] Trade Reforms
[C] Tax Reforms
[D] Financial Sector reforms
Show Answer
Correct Answer: D [Financial Sector reforms]
Notes:
In 1991 The Reserve Bank of India had proposed the committee chaired by M. Narasimham, former RBI Governor to review the Financial System and aspects relating to the Structure, Organization, Procedures and Functioning of the financial system. Committee submitted two reports, in 1992 and 1998, which laid significant thrust on enhancing the efficiency and viability of the banking sector. The Narasimham Committee laid the foundation for the reformation of the Indian banking sector.
9. Investment in which among the following is the Most Risk Free asset of a Bank as per the RBI guidelines?
[A] Housing Loans
[B] Government Approved Securities
[C] Venture Capital Investments
[D] Loans against Jewellery
Show Answer
Correct Answer: B [Government Approved Securities]
10. Which is the most volatile form of foreign capital?
[A] External Commercial Borrowings
[B] Foreign Direct Investment
[C] Loans from International Financial Institutions
[D] Foreign Portfolio Investment
Show Answer
Correct Answer: D [Foreign Portfolio Investment]
Notes:
Foreign Portfolio Investment refers to investments in securities like stocks and bonds by foreign investors. FPI is highly liquid and can be withdrawn quickly. FPI inflows and outflows are sensitive to global and domestic financial conditions. Sudden withdrawal of FPI causes market volatility. FPI is termed “hot money” compared to FDI, which involves long-term capital commitments. FPI contributed to major capital outflows during financial crises.
