ECONOMY PART 1

ANSWERS
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Prelims Wallah Test 2024

Test 13: Economy Part I Synopsis
1. C 26. D 51. C 76. B

2. C 27. C 52. C 77. A

3. C 28. D 53. D 78. C

4. D 29. D 54. D 79. B

5. A 30. B 55. B 80. B

6. A 31. C 56. D 81. D

7. A 32. D 57. B 82. B

8. A 33. C 58. A 83. C

9. B 34. D 59. D 84. C

10. C 35. A 60. D 85. B

11. C 36. C 61. B 86. B

12. C 37. C 62. D 87. D

13. A 38. B 63. B 88. C

14. C 39. B 64. C 89. C

15. B 40. A 65. A 90. A

16. D 41. C 66. B 91. C

17. C 42. A 67. C 92. A

18. C 43. C 68. B 93. B

19. D 44. C 69. A 94. C

20. D 45. B 70. D 95. C

21. A 46. B 71. C 96. C

22. B 47. D 72. D 97. C

23. D 48. B 73. A 98. A

24. C 49. B 74. D 99. C

25. B 50. C 75. B 100. D

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1. Ans : C 3. Ans: C
Exp: Exp:
Economics is the study of how societies use Pair 1 is correct: There are many ways to
scarce resources to produce valuable categorize poverty. In one such way, people
commodities and distribute them among who are always poor and those who are
different people. Economic activities, in a very usually poor but who may sometimes have a
simple way, are all activities where money is little more money are grouped together as the
involved. And wherever money comes into chronic poor.
question, there comes the economic motive or Pair 2 is incorrect: Another group are the
gain. churning poor who regularly move in and out
Several examples can be taken of it like of poverty.
• getting a job, giving a job, Pair 3 is incorrect: Occasionally poor who
• buying and selling something, are rich most of the time but may sometimes
• doing a business, and so on and so have a patch of bad luck. Churning poor and
forth. Occasionally poor together are called the
Visiting religious places for prayer is clearly transient poor. And then there are those who
not an economic activity, but giving alms to are never poor, and they are the non-poor.
beggars there or putting some money in the
places of worship are economic activities.

2. Ans: C
Exp:
Statement 1 is correct: Usually, taxing
involves payment of lower rates of tax on inputs
and a relatively greater rate of tax on the final
product/output. However, an inverted duty
structure indicates a situation when the rate of
tax on inward supply is higher than the rate 4. Ans: D
of tax on outward supply. Exp:
Statement 2 is incorrect: CGST Act, 2017 and Statement 1 is correct: The United Nations
CGST Rules, 2017, make a provision for a Human Development Index (HDI) was
refund of accumulated input tax credit on developed in 1990 by the Pakistani economist
account of the inverted duty structure. Mahbub ul Haq, who was assisted by Amartya
Key conditions for being eligible for a refund in Sen. It has been used since 1993 by the United
terms of the above provisions are: Nations Development Programme in its annual
• Rate of tax on input is higher than the report.
rate of tax on output supplies Statement 2 is correct: The 2010 Human
• The output supplies are not exempt or Development Report introduced the Inequality-
nil-rated supplies Adjusted Human Development Index (IHDI),
• Refund on such supplies is not which takes into account inequalities in the
specifically restricted by the three basic dimensions of human development
Government (income, life expectancy, and education) and
Statement 3 is correct: Inverted duty structure adjusts the HDI accordingly.
imposes higher import duties on the raw Statement 3 is correct: Between 1990 and
materials and intermediates than on the finished 2017, India's HDI value increased from 0.427
product. It puts the domestic manufacturers at to 0.640, reflecting an increase of nearly 50 per
a disadvantage, making their goods cent. This indicates India's significant progress
uncompetitive within the domestic market in improving human development and reducing
and in global markets. poverty during this period. Between 1990 and
2017, India's life expectancy at birth increased
by nearly 11 years, with even more significant
gains in expected years of schooling.

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5. Ans: A Hundreds of billions of dollars of tax revenue

Exp: are lost by the governments of the countries
Global Multidimensional Poverty Index: The where these companies actually carry out their
index is a key international resource that economic activity.
measures acute multidimensional poverty
across more than 100 developing countries. 7. Ans: A
Statement 1 is correct: MPI was first Exp:
launched in 2010 by the Oxford Poverty and Statement 1 is correct: The HDI offers a
Human Development Initiative and the comprehensive measure of human development
United Nations Development Programme. It by considering key dimensions, namely health
uses different factors beyond income-based (life expectancy at birth), education (mean
lists to determine poverty. years of schooling and expected years of
Statement 2 is incorrect: schooling), and standard of living (Gross
The index uses the same three dimensions as National Income per capita).
the Human Development Index. Those are Statement 2 is incorrect: The HDI employs a
Health, Education and standard of living and geometric mean to aggregate the normalized
are measured using ten Indicators. (Refer to the indices for its three dimensions, not a simple
figure given below). arithmetic mean. This geometric mean reflects
Statement 3 is incorrect: A person is multi- the idea that a balanced development across
dimensionally poor if he is deprived in one- these dimensions is more desirable than
third or more of the weighted indicators out of skewed development.
the 10 indicators. Statement 3 is incorrect: The HDI, while
valuable in assessing human development, does
not directly account for factors like inequality,
poverty, or human security. It focuses primarily
on the three core dimensions of human
development (health, education, and standard
of living).
Statement 4 is incorrect: The HDI uses the
logarithm of income as an adjustment to reflect
the diminishing importance of income with
increasing GNI. This adjustment is in line with
the concept that as a country's income
increases, additional income contributes less to
overall well-being, and thus the logarithmic
function is used to incorporate this into the HDI
calculation.

Fig: Dimensions and Indicators of Poverty in

MPI

6. Ans: A 8. Ans: A
Exp: Exp: The misery Index was given by Arthur
Base Erosion and Profit Shifting (BEPS) Okun in the 1970s. It is the unemployment
refers to tax planning strategies that exploit rate added to the inflation rate. It is based on
gaps in tax rules of some countries to the belief that a higher rate of unemployment
artificially shift profits to low or no-tax and worsening inflation intensify the misery.
locations with little or no real economic The higher the index, the greater the misery felt
activity. It means a company shifts to a by average citizens. It is a measure of economic
jurisdiction like Mauritius or Ireland, where tax distress felt every day by people due to the risk
rates are low, just to ‘avoid’ taxes. It thus of joblessness combined with an increasing cost
represents a case in which the tax base is eroded of living.
when the profits of firms are shifted to havens.

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9. Ans: B appropriately adjusted this cost of

Exp: living to arrive at the poverty line.
Pair 1 is correct: Ad-valorem tax is levied as • For this adjustment, he assumed that
a percentage of the value of the item it is one-third population consisted of
imposed on, and not on the item's quantity, size, children and half of them consumed
weight or other such factor. very little while the other half
Pair 2 is correct: Specific tax is the tax which consumed half of the adult diet.
is fixed as per each unit of good or service • The weighted average of consumption
rather than based on its value. of the three segments gives the average
Pair 3 is incorrect: Regressive Taxes are the poverty line, which comes out to be
taxes where the Tax percentage decreases with three-fourth of the adult jail cost of
an increase in income. living.
Pair 4 is incorrect: Progressive Taxes are the
taxes where the Tax percentage increases with 12. Ans: C
an increase in income. Exp:
Statement 1 is incorrect: Fiscal policy
10. Ans: C encompasses not only the quantitative but
Exp: also the qualitative aspects of public finance.
The ideas of Adam Smith were the drivers of It is concerned not just with how much is raised
the two major economic systems - ‘capitalism’ and spent but also with the manner in which
and ‘free market economy’. Though they are funds are raised and utilised, including whether
based on the same economic environments it is through taxes, borrowings, or a
(demand and supply), there are subtle combination of both. The quality of public
differences between them: finance, such as its impact on capital formation
Statement 1 is correct: While capitalism is and welfare, is a crucial consideration in fiscal
focused on the creation of ‘wealth’ and policy.
ownership of productive assets, the free Statement 2 is correct: The main channels
market economy is focused on the ‘exchange’ for fiscal receipts include disinvestment
of wealth (through the production and supply proceeds, borrowings from internal and
of goods and services). external sources, and taxes and user charges
Statement 2 is correct: In a capitalist system, levied for services like power, transport, and
there might be some government regulation, water. These diverse sources contribute to the
but private owners can have a monopoly on the government's overall revenue, reflecting the
market and thus prevent competition. multifaceted nature of fiscal policy in raising
However, a free market economy is solely funds.
based on market forces (demand and Statement 3 is incorrect: While Article 112 in
supply), and there is little or no government the Constitution addresses revenue and other
regulation. That is why in a free market expenditures, it does not explicitly mention
economy, free competition is possible without the division of receipts and expenditure into
any intervention from outside forces. revenue and capital accounts.

11. Ans: C Article 112: Annual financial statement

Exp: In pre-independent India, Dadabhai 1. The President shall in respect of every
Naoroji was the first to discuss the concept of financial year cause to be laid before both
a Poverty Line. the Houses of Parliament a statement of the
• He used the menu for a prisoner and estimated receipts and expenditure of the
used appropriate prevailing prices to Government of India for that year, in this
arrive at what may be called ‘jail cost Part referred to as the annual financial
of living’. statement
• However, only adults stay in jail 2. The estimates of expenditure embodied in
whereas, in an actual society, there are the annual financial statement shall show
children too. He, therefore, separately

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• The sums required to meet expenditure Gains Tax, Angel Tax, Cash
described by the Condition as expenditure Withdrawal Tax, Property Tax, etc.
charged upon the Consolidated Fund of Indirect tax: An indirect tax is levied on
India; and manufacturing, importing or sale of goods or
• The sums required to meet other services. It is called indirect because the real
expenditure proposed to be made from burden of such a tax is not borne by the
the Consolidated Fund of India, and individual or firm paying it but is passed on to
shall distinguish expenditure on revenue the consumer.
account from other expenditure. • Examples of indirect taxes are Goods
and Services Tax (GST), Central
Excise Duty, Customs Duty, Value
13. Ans: A Added Tax (VAT) of States,
Exp: Entertainment Tax, Stamp Duty,
Poverty is a state or situation in which a person etc.
or a group of people don't have enough money
or the basic things they need to live. 15. Ans: B
Poverty Line: It is the required level of income Exp:
to fulfil the basic necessities of life. The gap in income between the rich and the
lt can be represented in terms of either per poor is referred to as inequality. In other words,
capita calorie intake or per capita consumption it indicates the disparity in the distribution of
expenditure required to attain a minimum living economic assets and income.
condition. Option 1 is incorrect: Inflation can
It may vary from one country to another. It disproportionately affect lower-income
may also vary from one state to another in individuals and households, as they often spend
India due to different price levels prevailing a larger portion of their income on basic
in the country. This difference could be due to necessities like food, housing, and healthcare.
factors such as the cost of living, economic When the prices of these essential goods and
conditions, and other regional variations. services rise significantly, it can lead to a
According to the United Nations, India has reduction in the real income of lower-income
witnessed a remarkable achievement in poverty groups, thereby exacerbating income
reduction, with a staggering 415 million inequality.
individuals transitioning out of poverty within Option 2 is correct: Capital-intensive
a relatively short span of 15 years, from production methods often require significant
2005/2006 to 2019/2021. investments in machinery and technology,
Hence, Both Statement-I and Statement-II which can lead to a concentration of wealth and
are correct and Statement-II is the correct income among those who own and control these
explanation for Statement-I. capital assets. This can result in a wider income
gap between capital owners and labourers,
contributing to income inequality.
14. Ans: C Option 3 is correct: Urban bias in private
Exp: investment: An urban bias in private
Direct tax: A direct tax is one in which the investment means that more investment is
payment is made directly to the government by directed towards urban areas and industries,
the one on whom the burden of payment falls. neglecting rural or less-developed regions. This
The individual or the company paying the tax can lead to unequal economic development,
cannot pass the liability on to anybody else. with urban areas benefiting more from
• Examples of direct taxes are Income economic growth and job opportunities while
Tax, Corporate Tax, Minimum rural areas experience slower growth and fewer
Alternative Tax (MAT), Fringe employment prospects. This regional disparity
Benefit Tax (FBT), Dividend can contribute to income inequality.
Distribution Tax (DDT), Securities
Transaction Tax (STT), Capital

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16. Ans: D (vi) Grants which the governments receives—

Exp: it is always external in the case of the Central
The Gini Coefficient, or Gini Index, was Government and internal in the case of state
developed by the Italian statistician and governments
sociologist Corrado Gini in 1912. Statement 2 is incorrect: Revenue Account
Statement 1 is incorrect: It measures the Expenditure includes but is not limited to,
degree of income inequality in a country by interest payments, defence, subsidies, public
calculating the ratio of the area between the administration, and financial grants to states. In
diagonal (line of perfect equality) and the conventional terms, it includes maintenance
Lorenz curve divided by the total area of the and consumption expenditure, as well as
half square in which the curve lies. welfare expenditure. It does not create assets
• The value of the Gini coefficient varies directly.
between O and 1. Statement 3 is correct: All non-revenue
• 0 (zero) represents perfect equality, i.e., receipts of a government are known as capital
a situation where every resident has the receipts. Such receipts are for investment
same income. purposes and supposed to be spent on plan-
• 1 (one) indicates perfect inequality, i.e., development by the government. Capital
one resident earns all the income, and Account Receipts involve recoveries of loans,
the others have no income. receipts from asset sales, and fresh
To understand it simply - say an increase in borrowings from inside and outside the
value from 0.29 to 0.36 indicates more income country, both debt and non-debt.
inequality, which is certainly not good for an
economy. 18. Ans: C
Statement 2 is incorrect: The higher the Gini Exp
coefficient, the greater the gap between rich Structural Unemployment
and poor in a country. i.e., a higher level of • This type is associated with the
income inequality. economic structure of the country.
Economic structure implies: (i) rapidly
17. Ans: C growing population and
Exp: (ii) slow rate of capital formation, etc.
Statement 1 is correct: • When the demand for labour falls short
Non-tax Revenue Receipts: of the supply of labour due to the
This includes all money earned by the rapidly growing population and their
government from sources other than taxes. In immobility, the problem of
India, they are: (i) Profits and dividends which unemployment appears in the
the government gets from its public sector economy. This type of
undertakings (PSUs). unemployment is also caused by skill
(ii) Interests received by the government out of shortages. Hence, pair 1 is correct.
all loans forwarded by it, be it inside the country • This type of unemployment is long
(i.e., internal lending) or outside the country term in nature.
(i.e., external lending). It means this income Frictional Unemployment
might be in both domestic and foreign • The unemployment here is generated
currencies. by changes in market conditions. Here,
(iii) Fiscal services also generate incomes for some workers are temporarily out of
the government, i.e., currency printing, stamp work due to reasons such as strikes,
printing, coinage and medals minting, etc. layoffs by the company (suspension),
(iv) General Services also earn money for the time gaps between changing/switching
government as the power distribution, jobs, lock-outs, imperfect mobility of
irrigation, banking, insurance, community labour, etc. Hence, Pair 2 is correct.
services, etc. • This is a common phenomenon in the
(v) Fees, Penalties and Fines received by the industrial sector
government.

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Disguised Unemployment environment for individual success, innovation

• If a person does not contribute to the and business activities.
production process, or in other words, But it had its own set of limitations, which
if he or she can be removed from the are as follows:
work without affecting productivity • There was almost no tool to look
adversely, the situation is treated as after those who have lower
disguised unemployment. purchasing power (i.e., the poor).
• Here, the marginal productivity of • Negligible to the total absence of
labour (MPL) is equal to zero. welfare actions from the state.
Hence, Pair 3 is correct. • Widening economic inequality even
• It is a common phenomenon in the after launching distributive measures
cultural economy of developing or less such as progressive taxation (in which
developed economies. the rich are taxed at higher rates).

19. Ans: D The scarcity of investible capital is a

Exp: limitation of the non-market economy as the
Goods and Services Tax (GST) subsumed system’s aim was to serve all and there was no
various central indirect taxes including the idea of creating capital or wealth.
central excise duty, additional excise duties,
service tax, additional customs duty and special 21. Ans: A
additional duty of customs, etc. It also Exp
subsumed State Value Added Tax (VAT )/sales The Kuznets curve is a hypothetical curve that
tax, central sales tax, entertainment tax, octroi graphs economic inequality against per
and entry tax, purchase tax and luxury tax, etc. capita income over the course of economic
However, Alcohol, Petrol, Diesel, Aviation development. Simon Kuznets hypothesised
Turbine Fuel and Natural Gas do not come that as an economy develops, market forces
under GST. first increase then decrease the overall
economic inequality of society, which is
20. Ans: D illustrated by the inverted U-shape of the
Exp: Kuznets curve.
Market Economy: The origins of the Market
Economy can be traced back to the work of the
Scottish philosopher, and economist Adam
Smith (An Enquiry into the Nature and
Causes of the Wealth of Nations). It basically
runs on the premise that it is self-interest which
motivates individuals or firms to do economic
activities out of which society gets goods and
services supplied. It means the products society
gets are unintended social benefits of
someone’s self-interested actions. Fig: Kuznets curve
Adam Smith called this motivating factor the
invisible hand (often called the ‘animal Laffer curve- A curve devised by the
spirit’). For an invisible hand to operate economist Arthur Laffer in 1974 which links
properly a suitable environment (i.e., market) average tax rates to total tax revenue. It
determined by the forces of demand and supply suggests that higher tax rates initially increase
(called the market forces) is required. For revenue but after a point further increases in tax
efficient operation of the economic activities, rates cause revenue to fall.
the government should follow a policy of Phillips curve - It is a graphic curve which
laissez faire (non-interference). The smaller the advocates a relationship between inflation and
government, the better the economic unemployment in an economy. The curve
performance. Supported by democratic rights suggests that lower the inflation, higher the
and freedoms, this system had a great

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unemployment and higher the inflation, lower The Fiscal Responsibility and Budget
the unemployment. Management (FRBM) Act is to provide for the
Lorenz curve- A graph showing the degree of responsibility of the Central Government to
inequality in income and wealth in a given ensure intergenerational equity in fiscal
population or an economy. It is a rigorous way management and long-term macro-economic
to measure income inequality. In this method stability by removing fiscal impediments in the
(for example), personal incomes in an economy effective conduct of monetary policy and
are arranged in increasing order; the cumulative prudential debt management consistent with
share of total income is then plotted against the fiscal sustainability through limits on the
cumulative share of the population. Central Government borrowings, debt and
deficits, greater transparency in fiscal
22. Ans: B operations of the Central Government and
Exp: conducting fiscal policy.
Statement 1 is incorrect: Tax-Incidence The Main highlight of the FRBMA, 2003 was
shows the entity on which tax is imposed. It that the Gol was to take measures to reduce
is different from tax burden as the latter fiscal and revenue deficit so as to eliminate
refers to the one who actually bears it, the revenue deficit by March 31, 2008 and
consumer in the case of indirect taxes. For thereafter build up adequate revenue surplus.
direct taxes, both fall on the same entity. Tax on
petrol is paid by the consumer while the seller 24. Ans: C
is officially responsible for depositing it with Exp:
the government. Governments can implement various measures
Statement 2 is correct: Tax elasticity is to reduce income inequality. Some common
defined as the percentage change in tax strategies include progressive taxation, social
revenue in response to the change in tax rate welfare programmes, education reforms,
and the extension of coverage. It is unlike tax and market policies.
buoyancy which is growth-linked. • Control over monopolies and
Tax Buoyancy: It refers to the percentage restrictive trade practices: This can
change in tax revenue with the growth of help promote fair competition and
national income, that is, growth-based change prevent a concentration of wealth and
in tax collections. power, which is a measure to reduce
income inequality.
Tax Stability: It means no frequent changes, • Progressive taxation system under
and there is continuity of policy in a predictable direct tax: A progressive tax system
and transparent manner. Although revenue typically taxes higher income
from different taxes varies from year to year, individuals at a higher rate, which can
revenue stability is desirable because it makes help redistribute wealth and reduce
it easier for a government to build a credible income inequality.
spending and borrowing plan for the year • Employment generation: Creating
ahead. Taxes whose revenue is relatively stable job opportunities can help reduce
contribute to overall revenue stability. Market income inequality by providing income
players also can plan better. to a broader segment of the population.
• Inheritance tax and wealth tax on
23. Ans: D rich individuals: These taxes can help
Exp: reduce wealth concentration and
Statement 1 is incorrect: In India, social sector address income inequality.
expenditures, including education, labor • Encouraging labor-intensive sectors:
welfare, health, contributions to agriculture, Promoting labor-intensive industries
and social security under government flagship can create jobs and increase income for
schemes, are considered part of revenue the workforce, thereby reducing
expenditure. Excess of these expenditures income inequality.
contribute to the Revenue Deficit.
Statement 2 is incorrect:

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25. Ans: B When a tax is said to be buoyant, its revenue

Exp: increases without increasing the tax rate much.
National Sample Survey Office (NSSO): It This all actually depends upon:
became National Statistical Office (NSO) in • The size of the tax base
2019 after merging with Central Statistical • The rationality, predictability and
Office (CSO). It was done to streamline the simplicity of tax rates
efforts of both of these organisations. NSO is • The friendliness of the tax
headed by the Ministry of Statistics and administration.
Programme Implementation (MOSPI).
Considering the importance of availability of 27. Ans: C
labour force data at more frequent time Exp:
intervals, Statement 1 is correct: Labour force is the
National Sample Survey Office (NSSO) total number of people employed or seeking
launched Periodic Labour Force Survey (PLFS) employment in a country or region. One is
in April 2017. classified as ‘not in labor force’, if he or she was
The objective of PLFS is primarily twofold: engaged in a relatively longer period in any one
• to estimate the key employment and of the non-gainful activities. It refers to the
unemployment indicators (viz. Worker number of persons actually working or
Population Ratio, Labour Force willing to work. It is not related to the wage
Participation Rate, Unemployment rate. It is measured in terms of number of
Rate) in the short time interval of three persons (not in terms of man-days or person-
months for the urban areas only in the days).
‘Current Weekly Status’ (CWS). Statement 2 is correct: Workforce refers to
• To estimate employment and only those persons who are actually working.
unemployment indicators in both It does not take into account those who are
‘Usual Status’ (ps+ss) and CWS in willing to work (but not working).
both rural and urban areas annually. The Worker participation rate is defined as
The National Sample Survey Office (NSSO) the percentage of total workers (main and
headed by a Director General is responsible for marginal) to the total population.
conduct of large scale sample surveys in diverse Work participation rate = (Total Workers /
fields on All India basis. Primarily data are Total Population) X 100
collected through nation-wide household
surveys on various socio-economic subjects, 28. Ans: D
Annual Survey of Industries (ASI), etc. Besides Exp:
these surveys, NSSO collects data on rural and The World Inequality Lab is a global research
urban prices and plays a significant role in the centre focused on the study of inequality and
improvement of crop statistics through public policies that promote social, economic
supervision of the area enumeration and crop and environmental justice. They produce the
estimation surveys of the State agencies. It also World Inequality Report, which provides
maintains a frame of urban area units for use in estimates of global income and wealth
sample surveys in urban areas. inequality based on the most recent findings
compiled by the World Inequality Database
(WID). WID, also referred to as WID world, is
26. Ans: D an open-source database, that is part of an
Exp: international collaborative effort of over a
Tax Buoyancy refers to the percentage change hundred researchers in five continents. The
in tax revenue with the growth of national World Inequality Report includes discussions
income, that is, growth-based change in tax on potential future academic research as well as
collections. Tax buoyancy is an indicator to content useful for public debates and policy
measure the efficiency and responsiveness of related to economic inequality.
revenue mobilization in response to growth in
the GDP or National Income. Tax buoyancy
greater than one is good for the economy.

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29. Ans: D • The economic roles played by either

Exp: the state or private sector may not
Statement 1 is incorrect: Angel tax is levied remain fixed for all times to come and
when an unlisted company issues shares to may get modified as per the needs of
an investor at a price higher than its fair the time. Hence, Statement 1 is
market value. Earlier, it was imposed only on incorrect.
investments made by a resident investor. • Those roles which the private sector
However, the Finance Act 2023 proposed to will not be motivated to play (due to the
extend angel tax even to non-resident investors. absence of any profit element) should
It was first introduced in 2012 to deter the be better taken care of by the state.
generation and use of unaccounted money Supply of the ‘public goods’ is the best
through the subscription of shares of a closely example in this case. But the private
held company at a value that is higher than the sector is free to play this role also.
fair market value of the firm’s shares. Hence, statement 2 is correct.
Statement 2 is incorrect: A windfall tax is a • Regulation of the economic system is
tax levied by governments against certain to be taken care of by the state. Hence,
industries when economic conditions allow statement 3 is correct.
those industries to experience significantly
above-average profits. Windfall taxes are 31. Ans: C
primarily levied on companies in the targeted Exp:
industry that have benefited the most from the The State of Inequality in India Report has
economic windfall, most often commodity- been written by the Institute for
based businesses. Competitiveness and presents a holistic
analysis of the depth and nature of inequality in
30. Ans: B India. The report compiles information on
Exp: inequities across sectors of health, education,
Mixed Economy: In practice, the mixed household characteristics and the labour
economic system was already there (by the late market. As the report presents, inequities in
1930s) once the market economies adopted these sectors make the population more
certain policy changes (borrowing from the vulnerable and trigger a descent into
non-market economy) to recover out of the multidimensional poverty.
Depression. However the first country to
announce adopting this system was France (in 32. Ans: D
1944- 45, with the announcement to adopt Exp:
national planning). The system was further Statement 1 is incorrect: A Non-Banking
strengthened once the non-market economies Financial Company (NBFC) is a company
started modifying themselves by the mid- registered under the Companies Act, 1956
1980s. engaged in the business of loans and advances,
The chief characteristics of the mixed acquisition of
economy can be summarized in the following shares/stocks/bonds/debentures/securities
way: issued by Government or local authority or
• The state and private sector both have other marketable securities of a like nature.
economic roles. Statement 2 is incorrect: A Non-Banking
• The private sector to play those roles Financial Company (NBFC) is a company that
where the invisible hand (the motive of offers financial services similar to banks. These
profit) can work properly. Production services can include hire-purchase (a system
and supply of the ‘private goods’ where you hire goods with an option to buy),
(which people use by purchasing them insurance business, and chit business (a type of
from their own income) is the best rotating savings and credit association).
example in this case. However, the However, an NBFC does not include any
state is not prohibited from playing this institution whose main business is related to
role. agriculture, industry, buying or selling
goods (except securities), providing services,

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or dealing with the sale, purchase, or • in the north by the Black Sea
construction of property. • in the northeast by Georgia and
Statement 3 is incorrect: All NBFCs are not Armenia
entitled to accept public deposits. Only those • in the east by Azerbaijan and Iran
NBFCs to which the Reserve Bank had given a • in the southeast by Iraq and Syria
specific authorisation and have an investment • in the southwest and west by the
grade rating are allowed to accept/ hold public Mediterranean Sea and the Aegean Sea
deposits to a limit of 1.5 times its Net Owned • in the northwest by Greece and
Funds. Bulgaria.
The capital is Ankara, and its largest city and
33. Ans: C seaport is Istanbul. Of a total boundary length
Exp: of some 4,000 miles (6,440 km), about three-
Statement 1 is correct: When the balance of fourths is maritime, including coastlines along
the government’s total receipts (i.e., revenue + the Black Sea, the Aegean, and the
capital receipts) and total expenditures (i.e., Mediterranean, as well as the narrows that link
revenue + capital expenditures) turns out to be the Black and Aegean seas. These narrows—
negative, it shows the situation of fiscal deficit. which include the Bosporus, the Sea of
The situation of fiscal deficit indicates that the Marmara, and the Dardanelles—are known
government is spending beyond its means. collectively as the Turkish Straits.
Fiscal deficit may be shown in the quantitative
form (i.e., the total currency value of the deficit)
or in the percentage form of the GDP for that
particular year (percentage of GDP).
Statement 2 is incorrect: Budget Deficit is the
difference between total budgeted expenditure
and receipts that include the money borrowed
from the market by the RBI by floating
government securities. The concept was
discarded in 1997 as it led to accounting
distortions.

Statement 3 is correct: Monetized deficit is the

monetary support the Reserve Bank of India
(RBI) extends to the Centre as part of the
government's borrowing programme. In other Map: Countries bordering Turkey
words, the term refers to the purchase of
government bonds by the central bank to
finance the spending needs of the
government. 35. Ans: A
Also known as debt monetisation, the exercise Exp:
leads to an increase in total money supply in the Statement 1 is correct: While GDP includes
system, and hence inflation, as RBI creates the production within a country by all
fresh money to purchase the bonds. The same producers-citizens as well as foreign
bonds are later used to bring down inflation as multinational corporations, GNP captures all
they are sold in the open market. This helps RBI that is produced by the citizens of a country,
suck excess money out of the market and rein whether within the geography of the country or
in rising prices. abroad. In other words, GDP is a geography-
related concept, while GNP is citizen-related.
34. Ans: D GDP focuses on where the output is produced,
Exp: while GNP shows who produced it.
Turkey is a country that occupies a unique Statement 2 is incorrect: China's GDP was
geographic position, lying partly in Asia and much more than its GNP until the last
partly in Europe. Turkey is bounded: decade, as many foreign MNCs were operating

PW OnlyIAS
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in China. However, with China's Belt and Road budgetary revenues, marking the zenith of
Initiative gaining ground, the nation's GNP is fiscal responsibility.
catching up with its GDP. If MNCs relocate out
of China due to trade tensions with the US, its 38. Ans: B
GDP will diminish even more relative to its Exp:
GNP. Statement 1 is correct: The River terrapin is
found in India and Bangladesh (Sundarbans),
36. Ans: C Myanmar, Malaysia (peninsular), Indonesia
Exp: (Sumatra), Thailand, and Cambodia. It is
Statement 1 is correct: Dengue (break-bone regionally extinct in Myanmar, Singapore,
fever) is a viral infection that spreads from Thailand and Vietnam.
mosquitoes to people. It is more common in Statement 2 is incorrect: The conservation
tropical and subtropical climates. Most people status of the Riverine Terrapin, according to
who get dengue won’t have symptoms. But for the International Union for Conservation of
those that do, the most common symptoms are Nature (IUCN), is Critically Endangered. It
high fever, headache, body aches, nausea, and is placed in Schedule I of the Indian Wildlife
rash. Most will also get better in 1–2 weeks. Protection Act of 1972 and Appendix I of the
Statement 2 is correct: Most cases of dengue Convention on International Trade in
fever can be treated at home with pain Endangered Species of Wild Fauna and Flora.
medicine. Preventing mosquito bites is the Statement 3 is correct: It lives in coastal
best way to avoid getting dengue. There is no mangrove estuaries and creeks but ventures far
specific treatment for dengue. The focus is on upstream during the breeding season. It is an
treating pain symptoms. Acetaminophen omnivore which feeds on waterside plants and
(paracetamol) is often used to control pain. small animals such as clams. Females nest in
Non-steroidal anti-inflammatory drugs like sandbars and banks far upstream from the
ibuprofen and aspirin are avoided as they can normal estuarine habitat during the
increase the risk of bleeding. There is a vaccine breeding season, December to March.
called Dengvaxia for people who have had
dengue at least once and live in places where
the disease is common.

37. Ans: C
Exp:
Gross Primary Deficit is Gross Fiscal Deficit
less interest payments. Net Primary Deficit is
Net Fiscal Deficit minus net interest
payments.
The concept of primary deficit plays a pivotal
role in evaluating the government's fiscal
prowess by dissecting the fiscal deficit from
interest payments. It signifies the current fiscal
control efforts, excluding the burden of
historical interest payments. As a new
government is scrutinized for its fiscal
performance, the primary deficit serves as a key
metric, allowing a focused assessment of its
ability to rationalize the fiscal deficit. The .
aspiration of achieving a primary surplus 39. Ans: B
underscores the government's potential to Exp:
borrow less than interest payments, paving the Pair 1 is correct: Thang Ta--"The Art of the
way for future fiscal prudence. In this Sword and Spear"-- is the traditional
trajectory, a distant yet transformative future martial art of Manipur in Northeast
sees interest payments funded exclusively from India. It integrates various external weapons -

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the sword, spear, dagger, etc. - with the internal NBFCs have functions akin to that of banks;
practice of physical control through soft however, there are a few differences:
movements coordinated with the rhythms of 1. An NBFC cannot accept demand
breathing. It is part of the great heroic tradition deposits (which are payable on
of Manipur. demand), like the savings and current
Pair 2 is incorrect: It is considered among the accounts. Hence, statement 1 is
oldest and most scientific martial arts in the correct.
world, Kalaripayattu was developed in 2. Deposit insurance facility is not
Kerala. Lauded as the pride of Kerala, There available for NBFC depositors unlike
are lessons in using weapons like swords, in the case of banks. (It means the
daggers, spears, maces, and bows and arrows. public deposits with them are
The primary aim is the ultimate coordination ‘unsecured’. In case an NBFC defaults
between mind and body. Another focus of in repayment of the deposit, the
Kalaripayattu is the specialisation in depositor can approach the Company
indigenous medicinal practices. Kalaris are also Law Board or Consumer Forum or file
important centres of religious worship. Once a civil suit to recover the deposits).
the course is complete, one should engage in oil Hence, statement 2 is incorrect.
massage and practice to maintain shape. 3. An NBFC is not a part of the
Pair 3 is correct: Gatka is a style of stick payment and settlement system and,
fighting between two or more practitioners, as such, cannot issue cheques to its
with wooden sticks (called Soti) intended to customers. Hence, statement 3 is
simulate swords. It is practiced in the Indian incorrect.
state of Punjab. It was one of the basic
techniques of self-defence for Sikh warriors
during the martial period of great Sikh Gurus. It 41. Ans: C
is primarily used as self-defence and practiced Exp:
by the Gatkabaaz before opting for the usage of Statement 1 is correct: Extra Neutral Alcohol
sword/kirpan. (ENA) is the primary raw material for making
Pair 4 is incorrect: Silambam is a traditional alcoholic beverages. It is a colourless food-
Indian martial art that originated in the state of grade alcohol that does not have any impurities.
Tamil Nadu in southern India. The art, which It has a neutral smell and taste and typically
is also known as "Silambattam," combines contains over 95 per cent alcohol by volume.
aspects of martial arts, yoga, and Ayurveda, and Statement 2 is correct: ENA also serves as an
is considered to be one of the oldest martial arts essential ingredient in the manufacture of
in the world. In silambam, practitioners, known cosmetics and personal care products such as
as "silambattamis," train with a traditional perfumes, toiletries, hair spray, etc. Given its
weapon, known as a "silambam," which is a properties as a good solvent, ENA also finds
bamboo stick about four feet in length. The industrial use and is utilized in the production
silambam is used for both offensive and of some lacquers, paints, and ink for the
defensive techniques, and practitioners learn a printing industry, as well as in pharmaceutical
variety of strikes, thrusts, and blocks with the products such as antiseptics, drugs, syrups, and
weapon. medicated sprays.
Statement 3 is correct: Like ethanol, ENA is
40. Ans: A also a byproduct of the sugar industry (and
Exp: other sources) and is formed from molasses that
A non-banking institution which is a company is a residue of sugarcane processing. It is used
and which has its principal business of in the production of alcoholic beverages such as
receiving deposits under any scheme or whisky, vodka, gin, cane, liqueurs, and
arrangement or any other manner, or lending in alcoholic fruit beverages.
any manner is also a non-banking financial
company (residuary non-banking company,
i.e., RNBC).

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 14

42. Ans: A 44. Ans: C

Exp: Exp:
Statement 1 is correct: The National Centre Statement 1 is correct: The Asian elephant is
for Polar and Ocean Research (NCPOR) in the largest land mammal on the Asian
Goa, an autonomous institute under the continent. They inhabit dry to wet forest and
Ministry of Earth Sciences, is the nodal grassland habitats in 13 range countries
institution for India’s Polar research spanning South and Southeast Asia. While they
programme, which includes Arctic studies. prefer forage plants, Asian elephants have
Implementing India's Arctic policy will involve adapted to surviving on resources that vary
multiple stakeholders, including academia, the based on the area.
research community, business, and industry. It Statement 2 is correct: Asian elephants are
shall define timelines, prioritise activities and extremely sociable, forming groups of six to
allocate requisite resources. seven related females that are led by the oldest
Statement 2 is incorrect: India has a female, the matriarch. Like African elephants,
significant stake in the Arctic. It is one of these groups occasionally join others to form
thirteen nations holding Observer status in larger herds, although these associations are
the Arctic Council, a high-level relatively short-lived. In Asia, elephant herd
intergovernmental forum that addresses issues sizes are significantly smaller than those of
faced by the Arctic governments and the savannah elephants in Africa.
indigenous people of the Arctic. India's IUCN status of Asian elephants:
engagement with the Arctic region has been Endangered
consistent and multidimensional. The country
maintains that all human activity should be 45. Ans: B
sustainable, responsible, transparent, and based Exp:
on respect for international laws. On 1st July 1955, the State Bank of India was
constituted under the provisions of the State
43. Ans: C Bank of India Act 1955, for the purpose of
Exp: taking over the undertaking and business of the
Statement 1 is correct: Deficit financing Imperial Bank of India. The Imperial Bank of
means generating funds to finance the deficit, India was founded in 1921. The Bank transacts
which results from excess expenditure over general banking business of every
revenue. The gap is being covered by description including, foreign exchange,
borrowing from the public by the sale of bonds merchant banking and mutual funds.
or by printing new money.
The need for deficit financing: After successful experimentation in the partial
For developing countries like India, higher nationalizations the government decided to go
economic growth is a priority. A higher for complete nationalization. With the help of
economic growth requires finances. With the the Banking Nationalization Act of 1969, the
private sector being shy of making huge government nationalized a total number of 20
expenditures, the responsibility of drawing private banks.
financial resources rests on the government. 1. 14 banks with deposits were more
Often both the tax and non-tax revenues fail to than Rs. 50 crore of nationalized in
mobilise enough resources. The deficit is often July 1969, and
funded through borrowings or printing new 2. 6 banks with deposits were more than
currency notes. Rs. 200 crore nationalized in April
Statement 2 is correct: In deficit financing, the 1980.
Reserve Bank of India prints money and On the basis of the recommendations of both
supplies credit, resulting in an increase in high- the Gadgil Study Group and Banker's
powered money or reserve money. Committee (Nariman Committee) Reserve
Bank of India introduced the "Lead Bank
Scheme" in December of 1969.
The Regional Rural Banks (RRBs) were—
first set up on October 2, 1975 (only 5 in

PW OnlyIAS
 15

number) with the aim to take banking services It is caused by an increase in aggregate
to the doorsteps of the rural masses, especially demand and consumption due to:
in remote areas with no access to banking (i) increased private and government spending.
services. (ii) lower rate of savings by households.
(iii) depreciation in local exchange rate.
46. Ans: B (iv) reduction in taxes and
Exp: (v) increase in money supply and bank
Statement 1 is incorrect: Gross Value Added credit. Hence, Statement 2 is incorrect.
(GVA) is GDP minus indirect taxes. It gives This leads to increased disposable income in the
a more truthful measure of the economic hands of households, thereby resulting in
product and the rate of growth as indirect tax increase in the aggregate demand with no
collected on a commodity is in no way a change in aggregate supply.
contribution to the growth of the economy. Statement 3 is correct: Demand-pull
Statement 2 is correct: A commodity price is inflation is often described as "too much
known as a basic price once its indirect taxes money chasing too few goods." When there is
are deducted from its market price. When the an excess of money in the economy, consumers
basic prices of all goods and services produced and businesses have more purchasing power,
are added up, it gives the Gross Value Added and they compete for a limited supply of goods
(GVA). and services, driving up prices.
Statement 3 is correct: GVA helps us To check this inflation, the supplies need to be
determine the GDP-tax link. If the GDP increased to match increased demand, hence
growth is not the same as the GVA, the relieving the economy from higher levels of
discrepancy is caused by tax buoyancy. If the inflation.
output grows and the tax buoyancy is not
commensurate, it may mean one of the 49. Ans: B
following or both: the non-taxed part of the Exp:
GDP is growing (agriculture, for example), or Statement 1 is incorrect: It was established
there is tax evasion. in June 1945 by the Charter of the United
Nations and began work in April 1946. The
47. Ans: D seat of the Court is at the Peace Palace in The
Exp: Hague (Netherlands). Of the six principal
The Anang Tal Lake in South Delhi has been organs of the United Nations, it is the only one
declared a monument of national importance not located in New York (United States of
through a gazette notification by the Ministry of America).
Culture. Anang Tal, Mehrauli, an 11th-century Statement 2 is correct: The Court’s role is to
mini lake built by the founder King of Delhi, settle, in accordance with international law,
Anang Pal Tomar in 1052 AD. The Hindu legal disputes submitted to it by States and to
dynasty of Tomars ruled Delhi and the name give advisory opinions on legal questions
itself has come from the Dhillikapuri, of which referred to it by authorized United Nations
several stone inscriptions were found by organs and specialized agencies. The Court
General Cunningham during the British ASI decides disputes between countries, based on
period. the voluntary participation of the States
concerned. If a State agrees to participate in a
48. Ans: B proceeding, it is obligated to comply with the
Exp Court’s decision.
Statement 1 is correct: Demand-pull inflation Statement 3 is correct: The International
is a type of inflation that occurs when the Court of Justice is composed of 15 judges
aggregate demand for goods and services in elected to nine-year terms of office by the
an economy exceeds its aggregate supply. In United Nations General Assembly and the
other words, it is caused by an increase in Security Council. The Court may not include
overall demand that outpaces the economy's more than one national of the same
ability to produce goods and services. State. Moreover, the Court as a whole must
represent the main forms of civilization and the

PW OnlyIAS
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principal legal systems of the world. These 52. Ans: C

organs vote simultaneously but separately. In Exp:
order to be elected, a candidate must receive an It is also called 'supply shock inflation'. It
absolute majority of the votes in both bodies. occurs when general prices rise due to the
growing cost of 'factors of production' of goods
50. Ans: C and services such as land, labour, and raw
Exp: materials.
Statement 1 is incorrect: The income • For example, if the wage of the
approach to GDP calculation does not directly labourer rises, then the unit cost of
include the market value of final goods and production also rises, and as a result,
services. Instead, it adds up what factors earn, the prices of goods and services that are
such as wages, profits, rents, and more. The manufactured get hiked. When the
market value of final goods and services is supply of inputs of production is
included in the output approach to GDP reduced, it leads to increased prices or
calculation. even when the production of
Statement 2 is correct: The expenditure agricultural products is adversely
approach to GDP calculation adds affected due to various factors such as
consumption, investment, government droughts, floods, etc.
expenditure, and net exports. This method • In 1973, as a result of the oil shock (i.e.,
represents the total expenditures on goods and an unexpected increase in oil prices by
services (GSE), which must be equal to the OPEC countries), there was a massive
value of the goods and services produced rise in general price level across the
(GNP). globe.
Statement 3 is incorrect: GDP calculations Cost- Push Inflation is also caused by
typically consider only newly produced goods o Increase in indirect taxes
and services, and transactions involving o Increase in import prices
existing goods, like second-hand cars and o Higher cost of capital
houses, are not included in GDP. This is o Rising interest rates.
because GDP measures the value of production Fiscal stimulus is a part of the demand-pull
of new goods, not resale. However, services inflation.
provided by agents in resale, such as real estate
or auto agents' commissions, are counted as 53. Ans: D
they represent value-added services. Exp:
The Bureau of Indian Standards (BIS) is the
51. Ans: C National Standard Body of India established
Exp: under the BIS Act 2016 for the harmonious
Context: ISRO successfully completed the development of the activities of
static test of a human-rated solid rocket booster standardisation, marking and quality
(HS200) for the Gaganyaan Programme at certification of goods. To protect the interest of
Satish Dhawan Space Centre (SDSC), consumers as well as the industry, BIS is
Sriharikota, Andhra Pradesh. involved in various activities as follows:
About HS200: • Standards Formulation
The HS200 rocket booster is the human- • Product Certification Scheme
rated version of the well-proven S200 rocket • Compulsory Registration Scheme
booster of the GSLV Mk III satellite launch • Foreign Manufacturers Certification
vehicle, popularly known as LVM3. Scheme
The S200 motor, which is the first stage of the • Hall Marking Scheme
LVM3 launch vehicle intended for launching a • Laboratory Services
4000 kg class of satellites to Geosynchronous • Laboratory Recognition Scheme
transfer orbit, was configured as a strap-on • Sale of Indian Standards
rocket booster. • Consumer Affairs Activities
• Promotional Activities

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• Training Services at National & Appointments Committee of the Cabinet,

International level headed by the prime minister. The Financial
• Information Services Services Institutions Bureau (FSIB) is a
government body set up under the Department
54. Ans: D of Financial Services. The board will be
Exp: entrusted with making recommendations for
Statement 1 is correct: The Ministry of the appointment of full-time directors and
Science and Technology has launched the non-executive chairman of state-run
Support for Up-gradation Preventive Repair financial services institutions. FSIB would be
and Maintenance of Equipment headed by a chairman, a central government
(SUPREME) initiative. nominee. The board would comprise the
The funding pattern in the scheme would be Secretaries of the DFS, the chairman of IRDAI,
75:25 for all private and government-owned and a deputy governor of the RBI. Additionally,
institutions (except for state-funded institutions it will have three part-time members who are
for which 100% funding would be considered). experts in banking and three more from the
Facilities supported by DST (Department of insurance sector.
Science and Technology) and recognised
institutions such as UGC (University Grants 56. Ans: D
Commission) recognized Central Universities, Exp:
State Funded Universities, Deemed Statement 1 is correct: Mitochondria are the
Universities, and Private Universities are powerhouses of the cells. They generate
eligible for funding support under this scheme. energy, and thus are also responsible for cell
Statement 2 is correct: The aim of the function in the human body. Certain defects
initiative is to provide financial support for might occur, impacting the way the
repair/ upgradation/ maintenance/ retrofitting mitochondria produces energy for the cells
or acquiring additional attachment to increase (especially in the ‘energy-hungry’ tissues of the
functional capabilities of existing analytical brain, nerves, muscles, kidneys, heart, liver),
instrumentation facilities (AIFs) supported and thereby impacting cell function. The
by DST in various institutions / laboratories diseases that arise out of such mitochondrial
/ academic institutions. mutations are called mitochondrial diseases.
Different facilities created under the projects/ Mitochondrial diseases are only passed on by
Analytical instrumentation facilities (AIFs) the mother.
created earlier from the support of DST, only Statement 2 is correct: Mitochondria are
will be considered for the funding support organelles inside cells that, among other tasks,
under this Scheme. UGC recognised Central generate energy. The organelles are passed
Universities/ State Funded from mother to child. Mutations in the genes
Universities/Deemed Universities /Private housed inside mitochondria can lead to fatal
Universities/ inherited diseases that affect organs that
IITs/AIIMS/NITs/IISERS/Agency based need lots of energy, such as the brain and
Laboratories/ Colleges are eligible to apply muscles. There is no cure or effective treatment
under this Scheme. for many of the mitochondrial diseases.

55. Ans: B 57. Ans: B

Exp: Exp:
The BBB was declared an incompetent Statement 1 is incorrect: Structural Inflation
authority by the Delhi High Court when a persists for a longer period due to
general manager at state-owned National deficiencies existing in the economy, such as
Insurance Company challenged the • Backward agricultural sector (poor
appointment of a person junior to him for productivity).
Director’s position by the BBB. • Inefficient distribution and storage
The Banks Board Bureau (BBB) had to be facilities, and many more. Hence,
struck down, and a new body, namely, FSIB statement 2 is correct.
had to be put in place via approval from the • Backward technology

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• Infrastructural bottlenecks Bank in the proportion of 50:15:35,

• Supply chain breakdowns respectively.
• Greenflation is due to carbon tax.
These deficiencies in the economy lead to 60. Ans: D
shortages, which in turn cause inflation. Exp:
It is also termed as Bottleneck Inflation, and the The calculation of Gross Domestic Product
government faces a tough time tackling this (GDP) excludes the prices of intermediate
particular type of inflation. It can be handled goods used in the production process. These
through major structural reforms. are not counted to avoid double counting.
There are imputed values of GDP. All houses
58. Ans: A are assumed to be rented as it is not possible for
Exp: the government to check which is owner-
The Ministry of Health and Family Welfare occupied and which is not. Thus, the rental
(MoHFW) has introduced the Red Line value of all houses is a part of GDP. It is called
awareness campaign, urging individuals not imputation.
to use medications marked with a red In GDP, services provided by agents in resale,
vertical line without a doctor's prescription, such as real estate or auto agents' commissions,
in order to combat antimicrobial resistance. are counted as they represent value-added
Antibiotics are included in Schedule H and H1 services.
of the Drugs Rules, 1945. These drugs have
specific caution labelling requirements and are 61. Ans: B
sold only under the prescription of a Registered Exp:
Medical Practitioner. The supply of a drug Sanchar Saathi portal is a citizen-centric
specified in Schedule H1 is recorded in a initiative of the Department of
separate register at the time of the supply and Telecommunications to empower mobile
such records are maintained for three years and subscribers, strengthen their security and
are open for inspection. increase awareness about citizen-centric
India’s idea of putting a red line on antibiotic initiatives of the Government.
packages to curb their over-the-counter sale is Statement 1 is correct: Sanchar Saathi
now being cited as a model that can be used empowers citizens by allowing them to know
globally to counter the rising threat of the mobile connections issued in their name, get
superbugs. disconnected from the connections not required
by them, block/trace lost mobile phones and
59. Ans: D check the genuineness of devices while buying
Exp: a new/old mobile phone.
Statement 1 is incorrect: The Regional Rural Statement 2 is correct: The entire system has
Banks (RRBs) were established under the been designed in-house by Dept. of Telecom. It
provisions of an ordinance passed in 1975 has following modules.
and the RRB Act 1976. Kelkar Committee • Centralised Equipment Identity Register
was formed to study the extant Public (CEIR)
Private Partnership Model in India. • Know Your Mobile
Statement 2 is correct: The main goal of • Telecom Analytics for Fraud Management
establishing RRBs was to provide credit and and Consumer Protection (TAFCOP)
other banking facilities to small and • ASTR (Artificial Intelligence and Facial
marginal farmers, agricultural labourers, Recognition powered Solution for
and small artisans, which are a significant part Telecom SIM Subscriber Verification)
of the rural economy. The ASTR, is an AI powered tool for
Statement 3 is correct: The RRBs are jointly Telecom SIM Subscriber Verification. It uses
owned by the Central Government, the State various techniques of facial recognition and
Government, and a sponsor bank. The equity data analytics. It will help to identify SIMs
is held by the Central Government, the issued using fraudulent/forged documents.
concerned State Government, and the Sponsor Statement 3 is incorrect: The Centralised
Equipment Identity Register (CEIR)

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 19

prevents mobile devices with inaccurate or various species of wild animals, management
forged International Mobile Equipment of their habitat and also for the regulation
Identity (IMEIs) being used in Indian and control of trade in the products derived
networks. from various parts of wild animals.
The CEIR also prevents the use of stolen/lost Statement 2 is incorrect: The Act does not
mobiles. In case any mobile device is stolen or ban breeding in captivity of any animals
lost, a user can submit the IMEI numbers on the listed in Appendix I of Schedule IV of the
portal. Information submitted by the user, along Act. As per Section 49 N of the Act, persons
with a copy of the police complaint, is then engaged in breeding in captivity or artificially
verified. The system is integrated with the propagating any scheduled specimen listed in
Telecom Service Providers and Law Appendix I of Schedule IV are required to make
Enforcement Agencies. Once the information is an application for a licence as per the Rules
verified, the system blocks the stolen mobile framed under Section 49 N of the Wild Life
phones from being used in Indian networks. In (Protection) Act, 1972.
case anyone tries to use the stolen device, the
system allows Law Enforcement Agencies to 64. Ans: C
trace the device. When the stolen device is Exp:
recovered, the user can unlock the device on the The Committee on the Financial System was
portal. headed by Shri M. Narasimham.
Narasimham Committee's first report
62. Ans: D suggested setting up of special tribunals with
Exp: special powers for adjudication of cases
Pair 1 is correct:: The 4th edition of the Indo- involving the dues of banks and financial
Indonesia bilateral Exercise Samudra institutions. The idea was to create a more
Shakti-23 concluded on May 23. The sea phase efficient and expedited process for debt
held from 17-19 May 2023 witnessed the recovery, thereby unblocking public money
participation of ASW corvette INS Kavaratti tied up in various cases. After considering the
with an integral Chetak helicopter and a reports of the Narasimham Committee and
Dornier Maritime Patrol Aircraft. another committee under the chairmanship of
Pair 2 is correct: Exercise Ajeya Warrior is Shri T. Tiwari, the Parliament enacted the
a biennial training event with the United Recovery of Debts Due to Banks and Financial
Kingdom which is conducted alternatively in Institutions Act, 1993.
the United Kingdom and India. The 7th edition
of the joint military exercise “Ajeya-Warrior 65. Ans: A
23” between India and the United Kingdom Exp:
was conducted at Salisbury Plains, United Statement 1 is incorrect: The Global
Kingdom. Financial Innovation Network (GFIN) was
Pair 3 is correct: The sea phase of the second formally launched in January 2019 by an
edition of bilateral exercise 'Al Mohed Al international group of financial regulators
Hindi 23', between the Indian Navy and and related organisations.
Royal Saudi Naval Force (RSNF) was held on The GFIN is a network of over 70 organisations
May 23 off Al Jubail, Saudi Arabia. INS committed to supporting financial innovation in
Tarkash, INS Subhadra and Dornier Maritime the interests of consumers. It seeks to provide a
Patrol aircraft (MPA) participated in the more efficient way for innovative firms to
exercise from the Indian side. The RSNF was interact with regulators, helping them navigate
represented by HMS Badr and Abdul Aziz, MH between countries as they look to scale new
60R helo and UAV. ideas. This includes the ability to apply to join
a pilot for firms wishing to test innovative
63. Ans: B products, services or business models across
Exp: more than one jurisdiction.
Statement 1 is correct: The Wild Life Statement 2 is correct: The GFIN is overseen
(Protection) Act, 1972 (53 of 1972), provides by the Coordination Group. The Coordination
the legal framework for the protection of Group is made up of GFIN Members and sets

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the overall direction, strategy and annual work • In contrast to the tropical rainforests of
programme of the GFIN. The Coordination the Western Ghats, the vegetation in
Group is currently being chaired by the FCA. the Palghat Gap is classified as dry
Membership in the Coordination Group lasts evergreen forest.
for two years, and members meet twice a year • It also marks a divide in the flora and
to provide ongoing input and engagement into fauna of the region.
the work-streams. The Reserve Bank of India The Palghat Gap also influences southern
(RBI) is a member of the Global Financial India’s climate; the wet southwest monsoons as
Innovation Network (GFIN). Recently, RBI well as storms from the Bay of Bengal cross the
has also joined Global Financial Innovation mountains through the opening.
Network (GFIN)’s Greenwashing TechSprint.

66. Ans: B
Exp:
Statement 1 is incorrect: The Wholesale Price
Index (WPI) measures the change in wholesale
prices on a monthly basis (previously, it was on
a weekly basis). Presently, Industrial Policy and
Promotion (DIPP) under the Ministry of
Commerce and Industry compiles and
publishes the WPI.
Statement 2 is correct: WPI takes into account 68. Ans: B
around 697 commodities of various types to Exp:
measure inflation, but it does not take into Priority Sector means those sectors which the
account services. Government of India and Reserve Bank of India
Statement 3 is correct: WPI uses the ex- consider as important for the development of
factory prices of these commodities to measure the basic needs of the country and are to be
inflation. In other words, it takes into account given priority over other sectors. The banks are
the prices of commodities before they reach mandated to encourage the growth of such
consumers. Therefore, indirect taxes are not sectors with adequate and timely credit.
included in the prices considered for WPI All Indian banks have to follow the compulsory
computation, and as a result, WPI-based target of priority sector lending (PSL). The
inflation is less affected by any change in the priority sector in India is at present the
fiscal policy of the government. sectors— agriculture, small and medium
enterprises (SMEs), road and water
67. Ans: C transport, retail trade, small business, small
Exp: housing loans (not more than Rs. 10 lakhs),
The Palghat Gap is a major break in the software industries, self-help groups (SHGs),
Western Ghats mountain range, in agro-processing, education, small and
southwestern India. It is located between the marginal farmers, artisans, distressed urban
Nilgiri Hills to the north and the Anaimalai poor and indebted non-institutional debtors
Hills to the south and straddles the Kerala– besides the SCs, STs and other weaker sections
Tamil Nadu border, serving as a major of society.
communication route between those two states. In 2007, the RBI included five minorities—
• The Palghat Gap has historically been Buddhists, Christians, Muslims, Parsis and
important as a significant gateway into Sikhs under the PSL.
the State of Kerala. In its new guidelines of March 2015, the RBI
• It is a corridor for both roads and added ‘medium enterprise, sanitation and
railways that connects Coimbatore renewable energy’ under it.
with Palakkad.
• The Bharathapuzha river flows through
it.

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 21

69. Ans: A country. This digital learning platform will

Exp: ensure inclusive capacity building of health
Statement 1 is incorrect: Transfer payments professionals from primary health centres
are one-way payments of money for which no located in rural and remote areas all the way up
goods or services are received in exchange. to tertiary care and corporate hospitals in
They are typically used for income metropolitan cities.
redistribution or welfare programs and do not Currently SAKSHAM: LMIS is hosting more
involve the exchange of money for goods or than 200 public health and 100 clinical courses
services. through online mode.
Statement 2 is incorrect: The Pradhan Mantri
Ujjwala Yojana is considered a subsidy 71. Ans: C
program, not a transfer payment. It provides Exp:
select beneficiaries with access to stoves and The Reserve Bank of India (RBI) issued draft
LPG cylinders at a subsidised price, which is guidelines on the classification of wilful
linked to a commodity transaction. defaulters, expanding the definition of the term
Statement 3 is correct: Under the Pradhan and mandating lenders to complete the process
Mantri Matru Vandana Yojana (PMMVY), of identifying and tagging borrowers as wilful
GOI provides financial aid to pregnant defaulters within six months of loans turning
women who undergo institutional delivery in bad.
hospitals. The aid is also meant to help with the According to the RBI, a wilful defaulter is one
child's vaccination as well as nutritional food. who:
The money is directly transferred to the bank 1. Deliberate non-payment of the dues
accounts of pregnant women. The scheme is despite adequate cash flow and good
aimed at encouraging institutional deliveries in net worth;
order to reduce maternal as well as infant 2. Syphoning off of funds to the detriment
mortality. PMMVY is a transfer payment, and of the defaulting unit;
it is a conditional cash transfer. 3. Assets financed either have not been
Statement 4 is incorrect: Transfer payments purchased or been sold, and proceeds
are typically excluded from GDP have misutilised;
calculations because they do not represent the 4. Misrepresentation / falsification of
production of goods or services. It is a one-way records;
transfer and is not a payment involving 5. Disposal / removal of securities
purchase. without the bank's knowledge;
6. Fraudulent transactions by the
70. Ans: D borrower.
Exp:
Statement 1 is correct: The SAKSHAM 72. Ans: D
(Stimulating Advanced Knowledge for Exp:
Sustainable Health Management), a The Consumer Price Index (CPI) measures the
Learning Management Information System change in retail prices on a monthly basis. It
(LMIS) is a digital learning platform includes both goods and services.
developed by the National Institute of Health It is released by the National Statistical Office
& Family Welfare (NIHFW), New Delhi. The (NSO).
NIHFW is an autonomous organisation under Over the years, CPI has been widely used as a
the Ministry of Health and Family Welfare, macroeconomic indicator of inflation and as a
Government of India, acts as an ‘apex technical tool by the government and central bank for
institute’ as well as a ‘think tank’ for the targeting inflation and monitoring price
promotion of health and family welfare stability.
programmes in the country. It focuses on a homogeneous group of
Statement 2 is correct: SAKSHAM is a consumers, i.e., consumers with the same
dedicated and unified platform for likings in terms of the commodity basket.
providing online training and medical Presently, it takes into consideration two
education to all health professionals in the

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homogeneous groups: rural households and periodically to address international economic

urban households. and monetary issues.
It reflects the cost of living of the two G-7 countries consist of the
concerned categories of consumers. 1. U.S.,
CPI - Industrial Worker released by Labour 2. U.K.,
Bureau under the Ministry of Labour and 3. France,
Employment, GOI. 4. Germany,
5. Italy,
6. Canada, and
7. Japan.
The European Union has participated fully in
the G7 since 1981 as a “non-enumerated”
member. Russia was added to form the G8 in
1998, but was excluded in 2014 after it invaded
Crimea.
The 49th G-7 Summit was hosted by Japan.
Summits of the G7 take place annually and the
Presidency of the group rotates annually, with
the president responsible for setting the agenda
Table: Some indices, their base years, and the
for the summit and arranging logistics for it.
compiling entities

73. Ans: A
Exp:
Zero shadow day occurs when the sun aligns
directly overhead, causing shadows to virtually
disappear. The exact date for zero shadow days
depends on latitude; observers on the Tropic of
Cancer (23.5° north of the equator) experience
a zero shadow day on the June solstice, and
observers on the Tropic of Capricorn (23.5°
south of the equator) get their zero shadow day
on December’s solstice. Observers on the
equator experience two zero shadow days,
being exactly in between these two lines of
Map: G7 countries
latitude; equatorial zero shadow days fall on the
March and September equinoxes.
Statement 1 is incorrect: "Zero shadow day"
75. Ans: B
is a unique astronomical occurrence that
Exp:
happens twice a year for locations situated
Statement 1 is correct: The Reserve Bank of
between the Tropic of Cancer and the Tropic
India was set up on the basis of the
of Capricorn.
recommendations of the Royal Commission
Statement 2 is correct: The phenomenon of
on Indian Currency and Finance also known
Zero Shadow Day is caused by the tilt of Earth's
as the Hilton-Young Commission.
axis and its rotation around the sun. The
Statement 2 is correct: The Reserve Bank of
Earth's axial tilt of about 23.5 degrees plays
India was established on April 1, 1935 in
an important role in the zero shadow
accordance with the provisions of the Reserve
phenomenon. This tilt contributes to the sun's
Bank of India Act, 1934. Though originally
shadow effects.
privately owned, since nationalisation in 1949,
the Reserve Bank is fully owned by the
74. Ans: D
Government of India.
Exp:
Statement 3 is incorrect: The Central Office
The Group of Seven (G-7) is an
of the Reserve Bank was initially established
intergovernmental organisation that meets

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 23

in Kolkata but was permanently moved to production costs and be competitive in

Mumbai in 1937. The Central Office is where the market) etc.
the Governor sits and where policies are Statement 4 is correct: At the time of the
formulated. collapse of Lehman Brothers, it was the fourth-
largest investment bank in the United States.
76. Ans: B The bank became a symbol of the excesses of
Exp: the 2007-08 Financial Crisis, engulfed by the
Laundromat countries are those who buy subprime meltdown that swept through
Russian oil and sell processed products to financial markets and cost an estimated $10
European countries, thus side stepping trillion in lost economic output. The great
European sanctions against Russia. China, recession that followed the Lehman crisis of
India, Singapore, Turkey and the UAE are the 2008 had a significant global impact and lasted
Laundromat countries. for several years, illustrating the severe
The Centre for Research on Energy and Clean consequences of a prolonged economic
Air (CREA) report calls out these five downturn.
countries. The report explained that the
laundromat countries are refining larger 78. Ans: C
volumes of imported Russian crude to then Exp:
export refined products to sanction-imposed The Open Network for Digital Commerce
countries. This is currently a legal way of (ONDC) is a Section 8 company, under the
exporting oil products to countries that are initiative of Department for Promotion of
imposing sanctions on Russia as the product Industry and Internal Trade (DPIIT), with a
origin has been changed. mission to democratize digital commerce.
Statement 1 is correct: ONDC develops and
77. Ans: A maintains the ONDC Protocol, an open
Exp: technical standard similar to UPI, HTTP
Statement 1 is incorrect: Economic growth is and SMTP. ONDC Network is based on open
cyclical, characterized by alternating periods of specifications namely the ONDC
expansion and stagnation or decline, known as Protocol. Any two platforms that are compliant
business cycles. It is not a linear process and with the ONDC Protocol can interoperate
frequently experiences periods of decline or without specifically integrating with each
slowdown. other’s systems. The ONDC Protocol-
Statement 2 is incorrect: Governments usually compliant applications together constitute the
respond to recessions by adopting expansionary ONDC Network. The ONDC Protocol allows
macroeconomic policies, such as increasing buyers and sellers to trade goods or services no
money supply, increasing government matter which /platform they use, as long as the
spending, and decreasing taxation, to stimulate platforms are part of the ONDC Network.
economic growth, not by reducing money Statement 2 is correct: Open Network for
supply and increasing taxation. Digital Commerce (ONDC) is a globally
Statement 3 is incorrect: Major traits of first-of-its-kind initiative that aims to
depression could be as given below: democratise Digital Commerce, moving it
(i) An extremely low aggregate from a platform-centric model to an open-
demand in the economy causes network. ONDC will enable buyers and sellers
activities to decelerate; to be digitally visible and transact through an
(ii) the inflation being comparatively open network no matter what
lower; platform/application they use.
(iii) the employment avenues start
shrinking, forcing the 79. Ans: B
unemployment rate to grow fast; Exp:
(iv) To keep the business going, The Reserve Bank of India (RBI) was
production houses go for forced labour established on April 1, 1935, in accordance
cuts or retrenchment (to cut down with the provisions of the Reserve Bank of
India Act, 1934.

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The Preamble of the RBI describes the basic for the central and the state
functions of the Reserve Bank as: ‘to regulate governments; and also acts as their
the issue of Bank notes and keeping of reserves banker.
with a view to securing monetary stability in • Banker to Banks: RBI maintains
India and generally to operate the currency and banking accounts of all scheduled
credit system of the country to its advantage; to banks.
have a modern monetary policy framework to
meet the challenge of an increasingly complex
economy, to maintain price stability while 80. Ans: B
keeping in mind the objective of growth’. Exp:
Statement 1 is incorrect: Monetary Policy of Statement 1 is correct: The money market in
India is a set of actions available to a Central India encompasses both secured and unsecured
Bank i.e. RBI to achieve sustainable economic transactions. Secured transactions involve
growth by adjusting the money supply, while collateral, while unsecured transactions, also
the Fiscal policy (use of Government’ spending known as clean transactions, do not require
and taxation to influence the economy) comes collateral. Call money, for example, is an
under the Union Ministry of Finance. unsecured transaction in the money market, and
RBI formulates, implements and monitors it relies on promissory notes without the need
the monetary policy to maintain price stability for collateral.
while keeping in mind the objective of growth. Statement 2 is incorrect: Commercial paper
Statement 2 is correct: RBI acts as regulator (CP) in India can be issued for maturities
and supervisor of the Indian financial system between a minimum of 7 days and a
by prescribing broad parameters of banking maximum of up to one year from the date of
operations within which the country's banking issue. It cannot have a maturity period
and financial system functions. It is to maintain exceeding one year.
public confidence in the system, protect Statement 3 is correct: Certificates of Deposit
depositors' interest and provide cost-effective (CD) are issued by scheduled commercial
banking services to the public. banks and financial institutions (FI).
Statement 3 is correct: RBI is the manager of
foreign exchange in India and derives its 81. Ans: D
power from the Foreign Exchange Exp:
Management Act, 1999. It facilitates external Statement 1 is incorrect: The design, form and
trade and payment and promotes orderly material of bank notes shall be approved by the
development and maintenance of the foreign Central Government on the recommendations
exchange market in India. of the Central Board of the RBI. Every bank
note shall be a legal tender at any place in India,
Other functions include: however, on recommendation of the Central
• Issuer of currency: RBI issues, Board, the Central Government may declare
exchanges, and destroys currency notes any series of bank notes of any denomination
as well as puts into circulation coins to be not a legal tender.
minted by the Government of India to Statement 2 is incorrect: In terms of Section
give the public adequate quantity of 22 of the Act, the Reserve Bank has the sole
supplies of currency notes and coins right to issue banknotes in India. Section 25
and in good quality. states that the design, form and material of bank
• Developmental role: RBI performs a notes shall be such as may be approved by the
wide range of promotional functions to Central Government after consideration of the
support national objectives. recommendations made by the Central Board of
• Regulator and supervisor of RBI. The Government of India is responsible
payment and settlement systems to for the designing and minting of coins in
maintain public confidence in payment various denominations as per the Coinage
and settlement systems. Act, 2011.
• Banker to the Government: RBI Statement 3 is incorrect: The RBI Act
performs merchant banking function provides for a statutory basis for the Monetary

PW OnlyIAS
 25

Policy Framework and the Monetary Policy finance their loans. Such transaction when
Committee. The Central Government, in viewed from the supplier of funds, is Reverse
consultation with the RBI shall determine Repo. Likewise, to the party acquiring the
the inflation target in terms of the Consumer funds, it is Repo.
Price Index, once in every five years, which
needs to be notified in the Official Gazette. 84. Ans: C
Exp:
82. Ans: B Market price refers to the actual transacted
Exp: price, and it includes indirect taxes, which are
Statement 1 is incorrect: The Financial Goods and Services Tax (GST), customs duty,
Stability and Development Council (FSDC) and so on. Factor costs are the actual production
has been constituted vide GOI notification. costs at which goods and services are produced
It is a Non-statutory body. by the firms and industries in an economy. They
Statement 2 is correct: No funds are are the costs of all the factors of production,
separately allocated to the Council for such as land, labour and capital.
undertaking its activities.
The Council deals, inter-alia, with issues MP (market price) = FC (factor cost) +
relating to financial stability, financial sector indirect taxes – subsidies
development, inter–regulatory coordination,
financial literacy, financial inclusion and The concept of GDP at factor cost is useful to
macroprudential supervision of the economy, see how competitive market forces and
including the functioning of large financial distortionary indirect taxes are. If there is a high
conglomerates. productivity of factors, there is no need to
Statement 3 is correct: The Financial subsidise. The differentiation helps public
Stability and Development Council policy to rationalize both indirect taxes and
(FSDC) is chaired by the Union Finance subsidies.
Minister and its members are
• Governor, Reserve Bank of India; 85. Ans: B
• Finance Secretary and/or Secretary, Exp:
Department of Economic Affairs; The RBI uses Open market operations (OMOs)
• Secretary, Department of Financial in order to adjust the rupee liquidity conditions
Services; in the market on a durable basis. Open Market
• Chief Economic Adviser, Ministry of Operations (OMOs) include both repurchase
Finance; (repo or reverse repo) operations and
• Chairman, Securities and Exchange Board outright purchase and sale of government
of India; securities, for injection and absorption of
• Chairman, Insurance Regulatory and liquidity, respectively. Hence, Options 1 and 3
Development Authority and are correct.
• Chairman, Pension Fund Regulatory and • Repo Rate: The (fixed) interest rate at
Development Authority. which the Reserve Bank provides
overnight liquidity to banks against the
83. Ans: C collateral of government and other
Exp: approved securities under the Liquidity
Ready Forward Contracts (Repos) are Adjustment Facility (LAF).
financial agreements that involve a • Reverse Repo Rate: The (fixed)
simultaneous sale and purchase, typically used interest rate at which the Reserve Bank
by banks in India to address fund shortages. absorbs liquidity, on an overnight
These contracts are based on government basis, from banks against the collateral
securities and are often referred to as Repos. of eligible government securities under
This instrument plays a significant role in the the LAF.
banking sector's liquidity management. RBI carries out the OMO through commercial
These are purchase and repurchase agreements. banks and does not directly deal with the public.
It is often used by money market participants to OMO is one of the tools that RBI uses to

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smoothen the liquidity conditions throughout

the year and minimize its impact on the interest 88. Ans: C
rate and inflation rate levels. Exp:
Statement 1 is correct: Project Dantak is an
infrastructure development project
86. Ans: B undertaken by the Border Roads
Exp: Organisation (BRO) of India. Project
The Clean Note Policy is a policy adopted by DANTAK completes 60 years in Bhutan. It is
RBI to ensure the availability of good quality commemorating its Diamond Jubilee in
banknotes to the public. The Reserve Bank Bhutan. DANTAK plays an important role in
of India (RBI) has decided to withdraw the strengthening the bonds of friendship between
Rs 2000 denomination banknotes from India and Bhutan.
circulation in pursuance of its “Clean Note Statement 2 is correct: Project DANTAK is
Policy”. operational in Bhutan. It was established on
April 24, 1961, as a result of the visionary
As a part of the Clean Note Policy- leadership of His Majesty the Third King and
• Banks should do away with stapling of any then Prime Minister Jawahar Lal Nehru.
note packet and instead secure note Identifying the utmost importance of
packets with paper bands. connectivity in spurring the socio-economic
• Banks should sort notes into re-issuables development and growth of Bhutan, DANTAK
and non-issuables, and issue only clean was tasked to construct the pioneering
notes to the public; and motorable roads in the Kingdom.
• Banks should stop writing of any kind on Statement 3 is correct: Some of the notable
the watermark window of bank notes. projects executed by ‘Project Dantak’ include
the construction of Paro Airport, Yonphula
87. Ans: D Airfield, Thimphu – Trashigang Highway,
Exp: Telecommunication & Hydro Power
GDP measurements may not always reflect Infrastructure, Sherubtse College, Kanglung
genuine economic well-being and progress. and India House Estate.

A decrease in unemployment rates due to the 89. Ans: C

creation of jobs in the formal sector leads to an Exp:
increase in GDP and reflects genuine economic Social Progress Index-
well-being and progress. The creation of low- The 2021 Social Progress Index ranks 168
wage, part-time jobs may not provide stable countries on social progress. It combines 53
income or job security for individuals, which social and environmental outcome indicators to
can adversely affect their overall well-being. calculate an overall score for these countries,
A rise in government spending on healthcare based on tiered levels of scoring that include
and education is generally considered a positive measures in health, safety, education,
development for a country's well-being and technology, rights, and more.
progress.
An increase in clean energy production,
reducing greenhouse gas emissions, is a
positive development for both economic well-
being and the environment.
MONEY ILLUSION: A phrase coined by J.
M. Keynes to denote the misleading thinking
among people that they are getting richer as
a result of inflation when in reality, the value
of money decreases.

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 27

91. Ans: C
Exp:
The RBI uses Open market operations (OMOs)
in order to adjust the rupee liquidity conditions
in the market on a durable basis. When the
Reserve Bank feels that there is excess
liquidity in the market, it resorts to the sale
of government securities, thereby sucking
out the rupee liquidity. Similarly, when the
liquidity conditions are tight, the central bank
buys securities from the market, thereby
releasing liquidity into the market. It’s used as
a tool to rein in inflation and money supply in
the system. However, when liquidity is sucked
Fig: Social Progress Index out, it can lead to a spike in bond yields as the
RBI will release more government securities
into the market and bond buyers demand more
interest rates on these securities.

90. Ans: A Decreasing the Cash Reserve Ratio (CRR):

Exp: The CRR is the minimum fraction of the total
Statement 1 is incorrect: ISO COPOLCO, or deposits of customers, which commercial banks
the Committee on Consumer Policy, is a have to hold as reserves with the central bank.
committee of the International Organization If the RBI decreases the CRR, banks would
for Standardization (ISO) responsible for have to keep a smaller portion of their deposits
promoting consumer interests in the with the RBI, thereby increasing the amount of
standardization process and for ensuring that money available for lending, which can add to
standards are developed with the needs of the liquidity in the market. This action is
consumers in mind. typically taken when there is a liquidity
The International Standards Organization shortage, not when there is an excess of
(ISO), an international body with 168 countries liquidity.
as members, develops standards for the world
impacting a diverse range of business and social The introduction of new currency notes into the
sectors. Through their consumer committee on system increases the money supply and hence
standards development (COPOLCO), ISO the liquidity in the market.
involves the wider public in the process of
standardization. 92. Ans: A
Statement 2 is correct: ISO's Committee on Exp:
Consumer Policy (COPOLCO) is dedicated Statement 1 is correct: Commercial Paper
to promoting consumer participation in (CP) in India can be issued for maturities
standards development. ranging from a minimum of 7 days to a
Integrating the view of the consumer is maximum of up to one year from the date of
important in standards development because it issue. However, the maturity date of the CP
offers a real-life perspective, helping to ensure should not go beyond the date up to which the
that issues such as safety and quality are credit rating of the issuer is valid.
adequately addressed. In addition, it helps to Statement 2 is incorrect: All CPs issued in
ensure that products and services perform as India require a credit rating from a credit
expected and improves quality and reliability, rating agency. The credit rating is essential to
consistency in the delivery of services etc. assess the creditworthiness of the issuer, and
this information is crucial for potential
investors in CP.

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Statement 3 is incorrect: A company shall be profit margin. It’s important to note that the
eligible to issue CP provided PLR can vary from one bank to another.
• The tangible net worth of the company, as
per the latest audited balance sheet, is not
less than Rs. 4 crores; 94. Ans: C
• The working capital (fund-based) limit of Exp:
the company from the banking system is Genuine Progress Index: It is a metric used to
not less than Rs.4 crore and measure the economic growth of a country.
• The borrowal account of the company is It is often considered an alternative metric to
classified as a Standard Asset by the the more well-known gross domestic product
financing banks. (GDP) economic indicator.
Statement 4 is incorrect: CPs in India are The GPI indicator takes everything the GDP
typically issued at a discount to their face uses into account but adds other figures that
value. This means that investors purchase CPs represent the cost of the negative effects related
at a price lower than their face value and receive to economic activity, such as the cost of crime,
the face value upon maturity, which is one of ozone depletion, and the cost of resource
the distinguishing features of CPs. depletion, among others.
Statement 5 is incorrect: The minimum The GPI nets the positive and negative results
amount that can be invested by a single investor of economic growth to examine whether or not
in CP is 5 lakh or multiples thereof. it has benefited people overall.
The Genuine Progress Indicator is an
93. Ans: B attempt to measure whether the
Exp: environmental impact and social costs of
Bank Rate: It is the standard rate at which economic production and consumption in a
the Reserve Bank is ready to buy or country are negative or positive factors in
rediscount bills of exchange or other overall health and well-being.
commercial papers. The Bank Rate is
published under Section 49 of the Reserve Bank 95. Ans: C
of India Act, 1934. In general terms, the Bank Exp:
rate is the rate charged by the central bank for CRR (Cash Reserve Ratio) and SLR have been
lending funds to commercial banks. the traditional tools of the central bank's
Bank rates influence the lending rates of monetary policy to control credit growth, flow
commercial banks. Higher bank rates will of liquidity and inflation in the economy.
translate to higher lending rates by the banks. In Statement 1 is correct: Statutory Liquidity
order to curb liquidity, the central bank can Ratio or SLR is a minimum percentage of
resort to raising the bank rate and vice versa. deposits that a commercial bank has to
Repo Rate: The (fixed) interest rate at which maintain in the form of liquid cash, gold or
the Reserve Bank provides overnight liquidity other securities. It is basically the reserve
to banks against the collateral of government requirement that banks are expected to keep
and other approved securities under the before offering credit to customers. These are
Liquidity Adjustment Facility (LAF). not reserved with the Reserve Bank of India
Base Rate: This is the lowest rate established (RBI), but with banks themselves. The SLR is
by the Reserve Bank of India (RBI) at which fixed by the RBI.
banks can lend to their customers. The base rate Statement 2 is correct: The CRR is a direct
is set by the RBI to ensure that banks pass on instrument which immediately impacts the
the lower cost of funds to their customers when system liquidity. If CRR is increased, banks
the RBI cuts policy rates. must maintain higher balances in their
Prime Lending Rate (PLR): This is the current account with RBI, thereby creating
interest rate that banks charge to their most a liquidity deficit in the banking system.
creditworthy (prime) customers. The PLR is Similarly, decrease in CRR has the immediate
often guided by the cost of funds, impact of creating a liquidity surplus in the
administrative costs, and the bank’s internal banking system.

PW OnlyIAS
 29

96. Ans: C dollar and other foreign currency deposits at

Exp: which larger banks are prepared to borrow and
The Discount and Finance House of India lend these currencies in the Eurocurrency
Limited (DFHI) was set up in April 1988 by the market. The rate reflects market conditions for
RBI jointly with the public sector banks and international funds and is widely used by banks
financial investment institutions (i.e., LIC, GIC as a basis for determining the interest rates
and UTI). Its establishment was an outcome of charged on the US dollar and foreign currency
the long-drawn need for the following: loans to business customers.
• To bring an equilibrium of liquidity Statement 2 is correct: The Mumbai Inter-
in the Indian banking system and Bank Offer Rate (MIBOR) is the weighted
• To impart liquidity to the instruments average interest rate at which certain
of the money market prevalent in the banks/institutions in Mumbai are ready to lend
economy. in the call money market. The MIBOR was
In 2004, the RBI transferred its total holding in launched on June 15, 1998, by the Committee
the DFHI to the State Bank of India arm SBI for the Development of the Debt Market, as an
Gilts Limited. Its new name is SBI DFHI. overnight rate. The NSEIL launched the 14-day
1. It functions as the biggest ‘primary MIBOR on November 10, 1998, and the one-
dealer’ in the economy and functions month and three-month MIBORs on December
on a commercial basis. 1, 1998. Since the launch, MIBOR rates have
2. It deals in all kinds of instruments in been used as benchmark rates for the majority
the money market without any upper of money market deals made in India.
ceiling. Statement 3 is incorrect: LIBOR has played a
3. Operating in ‘two way’ (as a lender and pivotal role in influencing the interest rates set
borrower) its objective is to provide by financial institutions, mortgage lenders, and
needful liquidity and stability in the credit card agencies. Many financial products
financial market of the country. and contracts around the world are tied to
LIBOR, making it a critical factor in
97. Ans: C determining interest rates for a wide range of
Exp: loans and financial instruments. Therefore, it
Statement 1 is correct: Repo rate, also known has had a substantial impact on these sectors.
as the benchmark interest rate, is the rate at
which the RBI lends money to the banks for a 99. Ans: C
short term. When the repo rate increases, Exp:
borrowing from RBI becomes more expensive. Statement 1 is incorrect: GDP is not a
This, in turn, raises the interest rate in the comprehensive measure of a country's
economy and therefore reduces the total economic well-being. It primarily focuses on
money supply. the monetary value of goods and services
Statement 2 is correct: Reverse Repo rate is produced within a country's borders and does
the short-term borrowing rate at which RBI not account for many important factors such as
borrows money from banks. The central bank income distribution, quality of life,
uses this tool to change the money supply in the environmental sustainability, or non-monetary
economy. An increase in the reverse repo contributions to well-being, like volunteer work
rate means that the banks will get a higher and leisure time.
rate of interest from RBI. As a result, banks Statement 2 is correct: Rising crime rates can
prefer to lend their money to RBI, which is increase GDP due to higher expenditures on
always safe, instead of lending it to others security personnel and technology. These
(people, companies etc), which is considered increased government expenditures contribute
risky. positively to GDP. However, this does not
reflect a genuine improvement in the well-
98. Ans: A being of a society; it merely represents a
Exp: response to a negative situation.
Statement 1 is correct: The London Interbank Statement 3 is correct: Despite the destruction
Offered Rate (LIBOR) is the interest rate on wrought by environmental disasters like oil

PW OnlyIAS
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spills, it boosts GDP as cleaning up adds to • Gender discrimination resulting in

hiring and purchasing services and equipment. poor female literacy rates and wage
The costs associated with cleaning up and gap.
addressing the environmental damage caused
by such disasters are counted as part of GDP.
Therefore, GDP can increase due to the
economic activity generated by responding to
the disaster, but this does not indicate overall
economic well-being.
Statement 4 is incorrect: When more guns are
sold due to increased insecurity among people,
it can magnify GDP. The sale of firearms and
related services and equipment contributes
positively to GDP. However, this does not
reflect an improvement in societal well-being
but rather the economic response to a
perception of increased insecurity.
Statement 5 is correct: Commercial
agricultural production often boosts GDP, even
when it is unsustainable. This is because the
monetary value of agricultural goods and
services produced is included in GDP
calculations. Unsustainable agricultural
practices that may have long-term negative
consequences on the environment and society
are not adequately captured by GDP, making it
a limited measure in assessing the overall well-
being and sustainability of an economy.

100. Ans: D
Exp: Poverty is the deprivation of basic
human needs like food, clothing, shelter, safe
drinking water etc. It also includes deprivation
of opportunities to health, education, skills,
employment etc. There are many reasons for
poverty. Some of them are:
• Uncontrolled population growth
leading to a shortage of available
resources.
• Lack of vocational skills resulting in
unemployment which leads to poverty.
• Growth is not rapid enough to eradicate
poverty.
• Poverty is a vicious cycle
• Poor educational status.
• Internal security issues like
Insurgencies in North East India and
naxalism in the eastern corridor
affecting the poverty alleviation
programmes.

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