Indian Economy MCQs

Notes:
In India’s money supply classification, M1 represents narrow money because it includes currency with the public, demand deposits and other highly liquid balances. M3 is known as broad money since it covers M1 plus time deposits held with banks and therefore reflects a wider measure of money in the economy. Hence, both statements are correct. This classification is widely used in banking and monetary policy analysis.

Notes:
The Reserve Bank of India (RBI) provides temporary loan facilities to the central and state governments. This loan facility is called Ways and Means Advances (WMA).

Notes:
Under the former Plan/Non-Plan classification, Non-Plan Expenditure covered routine and committed items such as interest payments, defence, and pensions. Central Assistance to States for developmental projects was treated as Plan Expenditure because it was linked to development schemes and projects. Therefore, it does not fall under Non-Plan Expenditure in the pre-2017 budget framework. This distinction was used in the Indian budget before the classification was discontinued.

Notes:
CBLO was a money market instrument developed by the Clearing Corporation of India Limited (CCIL) and approved by the Reserve Bank of India. It enabled collateralized borrowing and lending, typically backed by government securities, among eligible market participants. CBLO operated in the Indian money market until it was replaced by Triparty Repo (TREP/TREPS) from November 5, 2018. Hence, the correct description is the CCIL-developed, RBI-approved instrument for collateralized borrowing and lending.

Notes:
Low liquidity in the economy reduces available funds for investment and lending. Reduced lending causes a drop in demand for assets such as stocks and real estate. Historical episodes, including the 2008 Global Financial Crisis, showed falling liquidity preceded asset price declines. Central bank policies that tighten liquidity often cause comparatively lower market activity and asset devaluation.

Notes:
Competitive devaluation refers to countries deliberately reducing their currency value to make exports cheaper. When multiple countries do this, the benefit to any one country’s exporters is reduced, harming their export competitiveness. In recent years, central banks have intervened to devalue currencies, impacting exporters most. Exporters lose price advantage if other nations devalue simultaneously. The phenomenon is termed a currency war.

Notes:
Commercial Paper is issued as an unsecured promissory note. It was first introduced in India in 1990. CPs have maturities ranging from 7 days to 1 year. Only companies with a high credit rating can issue CPs. The Reserve Bank of India regulates CP issuance. CPs are used for short-term funding needs by corporate bodies, primary dealers, and financial institutions.

Notes:
If a company has receivables, this means it has made a sale but has yet to collect the money from the purchaser.

Notes:
National income measures the value of current production of final goods and services in a given period. The resale of old goods is not counted because it does not represent current production. Annual goods production and services are included, while “new technology” is too vague and not the standard exclusion tested here.

Notes:
Both actions can tighten banks' liquidity position. When a central bank sells government securities, reserves are drained from the banking system, reducing immediately available funds. Stricter liquidity regulations can also force banks to hold more safe liquid assets or meet higher liquidity buffers, leaving less money available for lending and investment. Quantitative easing does the opposite, because it injects reserves into the system and eases liquidity conditions.