Q21easyCommon Misconception
The money multiplier in an economy increases with which one of the following?
(a) Increase in the Cash Reserve Ratio in the banks
(b) Increase in the Statutory Liquidity Ratio in the banks
(c) Increase in the banking habit of the people
(d) Increase in the population of the country
Answer: (c)
Trap: Common Misconception
Options (a) and (b) are traps because students know CRR and SLR are related to money multiplier but forget the inverse relationship. Increasing CRR/SLR DECREASES the multiplier. Option (d) seems logical but population alone doesn't increase the multiplier without increased banking participation.
Q22moderatePartial Truth
With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?
1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates
Select the correct answer using the code given below.
(a) 1, 2 and 4 only
(b) 3, 4 and 5 only
(c) 1, 2, 3 and 5 only
(d) 1, 2, 3, 4 and 5
Answer: (a)
Trap: Partial Truth
Statement 3 (inflation-indexing wages) creates a wage-price spiral which is more of a cost-push phenomenon, not demand-pull. Statement 5 (rising interest rates) REDUCES demand rather than increasing it. Students might include statement 3 thinking higher wages = more demand, but the mechanism is cost-push.
Q23moderatePartial Truth
With reference to India, consider the following statements :
1. Retail investors through demat account can invest in 'Treasury Bills' and 'Government of India Debt Bonds' in primary market.
2. The 'Negotiated Dealing System-Order Matching' is a government securities trading platform of the Reserve Bank of India.
3. The 'Central Depository Services Ltd.' is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 2
(c) 3 only
(d) 2 and 3
Answer: (b)
Trap: Partial Truth
Statement 3 is the trap - CDSL is promoted by BSE, but NOT jointly with RBI. Students who know BSE's involvement might assume RBI partnership given that CDSL deals with securities. RBI has its own depository mechanisms. RBI launched RBI Retail Direct for G-Sec access (statement 1).
Q24moderateCommon Misconception
With reference to 'WaterCredit', consider the following statements :
1. It puts microfinance tools to work in the water and sanitation sector.
2. It is a global initiative launched under the aegis of the World Health Organization and the World Bank.
3. It aims to enable the poor people to meet their water needs without depending on subsidies.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (c)
Trap: Common Misconception
Statement 2 is the trap. WaterCredit was launched by Water.org (founded by Matt Damon and Gary White), NOT by WHO and World Bank. The association of water/sanitation with WHO and World Bank is an intuitive but wrong leap. Students tend to attribute water initiatives to UN bodies.
Q25easyAbsolute Qualifier
In India, the central bank's function as the 'lender of last resort' usually refers to which of the following?
1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.
(a) 1 and 2
(b) 2 only
(c) 2 and 3
(d) 3 only
Answer: (b)
Trap: Absolute Qualifier
Statement 1 is tempting because 'last resort' implies lending when others won't, but RBI lends to banks not directly to trade/industry bodies. Statement 3 is tempting because RBI does buy government securities, but that's monetary policy/Ways and Means Advances - not the 'lender of last resort' function which specifically means helping banks in crisis.
Q33easy
Which among the following steps is most likely to be taken at the time of an economic recession?
(a) Cut in tax rates accompanied by increase in interest rate
(b) Increase in expenditure on public projects
(c) Increase in tax rates accompanied by reduction of interest rate
(d) Reduction of expenditure on public projects
Answer: (b)
Q34moderateCommon Misconception
Consider the following statements :
Other things remaining unchanged, market demand for a good might increase if
1. price of its substitute increases
2. price of its complement increases
3. the good is an inferior good and income of the consumers increases
4. its price falls
Which of the above statements are correct?
(a) 1 and 4 only
(b) 2, 3 and 4
(c) 1, 3 and 4
(d) 1, 2 and 3
Answer: (a)
Trap: Common Misconception
Statement 3 is the key trap. For inferior goods, demand DECREASES when income increases (by definition). Students who confuse inferior goods with normal goods will include statement 3. Statement 2 is also tricky - if complement's price rises, demand for the good DECREASES (e.g., if petrol price rises, car demand falls).
Q35moderatePartial Truth
With reference to 'Urban Cooperative Banks' in India, consider the following statements :
1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (b)
Trap: Partial Truth
Statement 1 is the trap. While State Governments do have a role through Registrar of Cooperative Societies, UCBs are primarily regulated by RBI (not 'local boards set up by State Governments'). The dual regulation aspect creates confusion, but the statement's framing as 'supervised and regulated by local boards' is incorrect.
Q36easyAbsolute Qualifier
Indian Government Bond Yields are influenced by which of the following?
1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates
Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 2 only
(c) 3 only
(d) 1, 2 and 3
Answer: (d)
Trap: Absolute Qualifier
Statement 1 is the contentious one. Students might think Indian bond yields are only influenced by domestic factors and exclude the US Federal Reserve. But in a globalized financial system, US Fed actions affect global capital flows, FII investments, and consequently Indian bond yields.
Q37moderateAbsolute Qualifier
Consider the following :
1. Foreign currency convertible bonds
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?
(a) 1, 2 and 3
(b) 3 only
(c) 2 and 4
(d) 1 and 4
Answer: (a)
Trap: Absolute Qualifier
NRE deposits (statement 4) are banking deposits, not equity investments - they fall under 'other capital' not FDI. Students might include them thinking any foreign capital inflow is FDI. FII with 10%+ stake qualifies as FDI (statement 2), and FCCBs and GDRs count as FDI equity components.
Q38moderateAbsolute Qualifier
Consider the following statements :
The effect of devaluation of a currency is that it necessarily
1. improves the competitiveness of the domestic exports in the foreign markets
2. increases the foreign value of domestic currency
3. improves the trade balance
Which of the above statements is/are correct?
(a) 1 only
(b) 1 and 2
(c) 3 only
(d) 2 and 3
Answer: (a)
Trap: Absolute Qualifier
The word 'necessarily' is the key trap. Statement 3 is tricky because devaluation doesn't NECESSARILY improve trade balance (J-curve effect, Marshall-Lerner condition). Statement 2 is outright wrong - devaluation DECREASES foreign value. Students who ignore 'necessarily' will pick (c) for statement 3.
Q39easy
Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?
(a) Diversion of resources to the purchase of real estate and investment in luxury housing
(b) Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.
(c) Large donations to political parties and growth of regionalism
(d) Loss of revenue to the State Exchequer due to tax evasion
Answer: (d)
Q40easy
Which one of the following is likely to be the most inflationary in its effects?
(a) Repayment of public debt
(b) Borrowing from the public to finance a budget deficit
(c) Borrowing from the banks to finance a budget deficit
(d) Creation of new money to finance a budget deficit
Answer: (d)