Indian Economy MCQs

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The process of laundering money generally involves three steps: placement, layering, and integration. Placement refers to injecting the “dirty money” into the legitimate financial system. Layering conceals the source of the money through a series of transactions and bookkeeping tricks. in Integration, the now-laundered money is withdrawn from the legitimate account to be used for desired purposes.

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A complementary commodity is the one which is used along with another commodity. When the price of a particular commodity rises, it will induce a fall in demand of another commodity. This is because consumers may not prefer to buy only the complement.

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The financial year of India begins from April 1 of a calendar year and ends on March 31 of the next calendar year. This system has been into existence since the British Raj in India. Hence, Banks in India publish their financial statements / balance sheets for March 31st of every year.

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The Insurance Regulatory and Development Authority of India (IRDAI) is the national agency of Government of India (GoI) for the Indian insurance industry. It is the regulatory body established under the Insurance Regulatory and Development Authority Act, 1999 and reports to Ministry of finance. Its headquarters is in Hyderabad, Telangana.

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The correct answer is “Ability to pay approach.” Progressive taxation is designed so that individuals with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes. This approach is based on the principle that those who have a greater ability to pay should contribute more to fund public services and social programs. Historically, this concept aligns with the ideas of economists like Adam Smith, who advocated for equitable taxation based on individual financial capacity.

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Milton Friedman, a Noble laureate economist, suggested the theory of flexible exchange rates in 1953. His proposition was based on the autonomous ability of market forces to adjust and maintain an equilibrium level of exchange rates. He argued that central bank’s interference usually results in disequilibrium and may lead to economic crises.

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The correct answer is “Both 1 & 2 are correct.” 1. The G-sec (Government Securities) market is characterized by low speculation due to the stability and low risk associated with government bonds, making them a safe investment. 2. Institutional investors, such as banks, insurance companies, and pension funds, dominate the G-sec market, accounting for a important portion of trading volume. In India, for instance, institutions hold over 80% of G-secs, reflecting their preference for stable returns.

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Round tripping refers to money from one country going out through unofficial channels and being invested back into the same country from outside to avail of tax benefits under the double tax avoidance agreement (DTAA).Round Tripping makes the government lose large amount of tax revenue as taxes on both outgoing and incoming money is lost.

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Inflation Indexed Bonds (IIBs) are pegged to the Consumer Price Index (CPI). This means their interest payments and principal value adjust based on changes in the CPI, which measures the average change over time in the prices paid by consumers for goods and services. IIBs aim to protect investors from inflation, ensuring that the purchasing power of their returns is maintained. In India, the CPI is the primary measure for these bonds, while the Wholesale Price Index (WPI) measures price changes at the wholesale level and is not used for IIBs.