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Generate QuizEconomics – GK Questions
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What is the primary objective of Open Market Operations (OMOs) conducted by the RBI?
- To regulate the stock market
- To manage durable liquidity in the banking system
- To fix the exchange rate of the Rupee
- To distribute government subsidies
Answer: To manage durable liquidity in the banking system
OMOs involve the outright sale or purchase of government securities by the RBI. Selling securities absorbs permanent (durable) liquidity from the market, while buying them injects liquidity. It is a primary tool for signaling the monetary policy stance over the medium term.
When commercial banks face severe liquidity shortages and cannot borrow from the inter-bank market, they approach the RBI as the ___.
- lender of last resort
- Washington
- substitutes
- arbitrage (or resale)
Answer: lender of last resort
This critical function ensures the stability of the financial system. By providing emergency liquidity assistance to solvent but illiquid banks, the RBI prevents bank runs and systemic contagion that could otherwise trigger a broader financial crisis.
The RBI acts as the 'Banker to the Government' by maintaining the current accounts of the Central and State Governments and managing their public debt.
- True
- False
Answer: True
As the government's banker, the RBI receives and makes payments on behalf of the government, facilitates the transfer of funds, and crucially, manages the issuance of new government bonds and treasury bills to finance the fiscal deficit.
In which year did the Government of India announce the demonetization of Rs. 500 and Rs. 1000 currency notes?
- 2014
- 2015
- 2016
- 2017
Answer: 2016
Demonetization was announced on November 8, 2016, with the stated objectives of curbing black money, eliminating counterfeit currency, and pushing the economy towards digital payments. It resulted in 86% of the currency in circulation being temporarily withdrawn from the system.
Irving Fisher's equation of exchange, which forms the basis of the Quantity Theory of Money, is expressed as MV = ___.
- PT
- Coase
- 1992
- Paper Gold
Answer: PT
In Fisher's equation, M is the money supply, V is the velocity of money, P is the general price level, and T is the volume of transactions (or real output). It posits that assuming V and T are constant in the short run, any increase in the money supply (M) directly leads to a proportional increase in inflation (P).
The money multiplier in an economy is directly proportional to the Cash Reserve Ratio (CRR) maintained by commercial banks.
- True
- False
Answer: False
The money multiplier is inversely related to the reserve ratio (including CRR). When banks are required to hold a higher percentage of deposits as reserves, they have less money available to lend out. This reduces the credit creation capacity of the banking system, thereby shrinking the overall money multiplier.
Which component is added to M1 to derive the broad money measure, M3?
- Savings deposits with post offices
- Time deposits (fixed deposits) with banks
- Currency held in bank vaults
- Inter-bank call money
Answer: Time deposits (fixed deposits) with banks
M3, widely used for monetary policy analysis, is calculated as M1 plus time deposits held by the public with banks. While time deposits are less liquid than demand deposits because they have a fixed maturity period, they still represent a significant store of purchasing power in the economy.
The narrowest measure of money supply in India, M1, includes Currency with the public, Demand Deposits, and ___ Deposits with the RBI.
- two
- Other
- TRIMs (or Trade-Related Investment Measures)
- Net Factor Income from Abroad (NFIA)
Answer: Other
M1 is the most liquid measure of money supply, comprising coins and currency notes held by the public, net demand deposits held by commercial banks, and 'Other Deposits' (like foreign central bank or IMF deposits) held with the RBI. It represents the money immediately available for transactions.
Fiat money possesses high intrinsic value because it is fully backed by gold reserves held by the central bank.
- True
- False
Answer: False
Fiat money, such as modern paper currency, has zero intrinsic value and is not backed by any physical commodity like gold or silver. Its value derives entirely from government decree (fiat) and the public's trust that it will be accepted as a medium of exchange for goods and taxes.
According to Gresham's Law, what happens when two forms of commodity money with the same face value circulate simultaneously?
- Good money drives out bad money
- Bad money drives out good money
- Both circulate equally
- Both are hoarded
Answer: Bad money drives out good money
Gresham's Law states that if there are two forms of money in circulation with the same face value but different intrinsic values, people will hoard the 'good' money (higher intrinsic value, like gold) and spend the 'bad' money (lower intrinsic value). Consequently, the bad money dominates the market.
The ___ Curve hypothesizes an inverted-U shaped relationship between income inequality and economic development.
- Lewis
- trust (or confidence / faith)
- Engel's
- Kuznets
Answer: Kuznets
Simon Kuznets theorized that as an economy develops from agrarian to industrial, inequality initially rises as people move to higher-paying urban jobs. However, as the economy matures and welfare mechanisms, education, and democratization spread, inequality eventually decreases.
The 'Demographic Dividend' in India refers to the economic growth potential arising from a shift in the population structure where:
- The elderly population exceeds the youth population
- The working-age population is larger than the non-working-age dependent population
- The female workforce participation reaches 100%
- The rural population exceeds the urban population
Answer: The working-age population is larger than the non-working-age dependent population
India is currently experiencing a demographic dividend because its working-age population (15-59 years) is growing faster than its dependent population (children and elderly). To actually reap this dividend, however, the country must invest heavily in education, health, and job creation.
The ___ model of economic development describes the transition of an economy from a traditional, agrarian sector with surplus labor to a modern, industrial capitalist sector.
- Lewis
- C2 (or Comprehensive)
- frictional
- isoquant
Answer: Lewis
W. Arthur Lewis proposed the dual-sector model, explaining how developing economies can grow by transferring 'surplus' or disguisedly unemployed labor from the subsistence agricultural sector to the higher-productivity industrial sector, keeping wages low and profits high for reinvestment.
The Harrod-Domar growth model emphasizes technological progress as the primary driver of long-term economic growth, whereas the Solow model focuses solely on savings rates.
- True
- False
Answer: False
The reverse is true. The Harrod-Domar model posits that economic growth depends heavily on the national savings rate and the capital-output ratio, assuming fixed technology. The Solow-Swan model introduced exogenous technological progress as the critical factor for sustaining long-term per capita growth beyond mere capital accumulation.
The Incremental Capital-Output Ratio (ICOR) is used to measure:
- The marginal efficiency of capital
- The efficiency of investment in generating additional output
- The depreciation rate of capital assets
- The ratio of foreign to domestic capital
Answer: The efficiency of investment in generating additional output
ICOR indicates how much additional capital is needed to produce one additional unit of output. A lower ICOR signifies high efficiency and productivity of investments, whereas a high ICOR indicates inefficiency, poor infrastructure, or technological bottlenecks in the economy.
In national income accounting, GFCF stands for Gross Fixed ___ Formation, which is a key measure of investment in an economy.
- Green
- 2011-12
- Capital
- Current
Answer: Capital
GFCF represents the net increase in physical assets (like machinery, buildings, and infrastructure) within the economy during a specific period, minus depreciation. It is a crucial component of GDP and a primary indicator of a nation's investment climate and future productive capacity.
The 'Make in India' initiative, aimed at transforming the country into a global design and manufacturing hub, was launched in which year?
- 2012
- 2014
- 2016
- 2018
Answer: 2014
Launched in September 2014, Make in India focuses on 25 key sectors of the economy. It aims to facilitate investment, foster innovation, enhance skill development, and build best-in-class manufacturing infrastructure to increase the manufacturing sector's share in GDP.
The Production Linked Incentive (PLI) scheme provides financial incentives to companies based on their total historical investments rather than their incremental sales from products manufactured in India.
- True
- False
Answer: False
The PLI scheme is specifically designed to reward incremental sales from goods manufactured within domestic borders over a defined base year. It aims to boost domestic manufacturing, attract foreign direct investment, and integrate Indian firms into global supply chains by making them globally competitive.
Among the eight core industries, ___ holds the highest weightage in the Index of Industrial Production (IIP).
- Refinery Products
- social
- 1998
- substitutes
Answer: Refinery Products
Petroleum refinery products hold the highest weight (approximately 28%) among the core industries, followed by electricity and steel. This reflects the critical dependence of the Indian economy and transportation sector on refined petroleum products.
How many industries are classified as 'Core Industries' for the purpose of calculating the Index of Industrial Production (IIP) in India?
- 6
- 8
- 10
- 12
Answer: 8
The Eight Core Industries (Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement, and Electricity) comprise over 40% of the weight of the items included in the IIP. They are considered leading indicators of overall industrial and economic activity.