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Generate QuizEconomics – True/False – GK Questions
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Under the WTO's 'National Treatment' principle, a member country is legally permitted to impose higher internal sales taxes on imported foreign goods compared to identical domestically produced goods to protect local industries.
- True
- False
Answer: False
The National Treatment principle (Article III of GATT) strictly prohibits such discrimination. Once foreign goods have cleared customs and entered the domestic market, they must be treated exactly the same as 'like' domestic products regarding internal taxes, regulations, and standards. Imposing a higher internal sales tax on imports to shield local producers is a direct violation of WTO rules and can invite retaliatory trade sanctions.
If the Indian Rupee depreciates against the US Dollar, it immediately makes Indian IT service exports more expensive for American clients, thereby reducing the volume of India's software exports.
- True
- False
Answer: False
Depreciation means the Rupee loses value relative to the Dollar (e.g., moving from Rs. 70 to Rs. 80 per USD). For an American client paying in Dollars, Indian services actually become *cheaper* in dollar terms. Therefore, currency depreciation generally boosts the competitiveness of a country's exports (both goods and services) in the global market, while simultaneously making imports (like crude oil) more expensive for domestic consumers.
In the horizontal devolution formula recommended by the 15th Finance Commission, the 'Income Distance' criterion is assigned the highest weightage to ensure that poorer, less developed states receive a proportionately larger share of central taxes.
- True
- False
Answer: True
The 15th Finance Commission assigned a massive 45% weightage to the 'Income Distance' criterion (the gap between a state's per capita GSDP and that of the richest state). This heavily progressive weighting ensures that states with lower fiscal capacity and higher developmental needs (like Bihar or UP) receive significantly more funds per capita than wealthier, industrialized states (like Maharashtra or Tamil Nadu), promoting national equity and balanced regional growth.
The Goods and Services Tax (GST) Council, chaired by the Union Finance Minister, takes all decisions regarding tax rates and exemptions based on a simple majority (more than 50%) vote of the members present.
- True
- False
Answer: False
To protect the federal structure and ensure that neither the Centre nor the States can unilaterally force a decision, the GST Council requires a special majority of not less than three-fourths (75%) of the weighted votes cast. The Centre holds one-third of the total votes, while all the States combined hold two-thirds, meaning both the Centre and a significant consensus of States must agree for any resolution to pass.
In the Union Budget, 'Grants-in-Aid' provided by the Central Government to State Governments or Union Territories are classified as Capital Expenditure because they are used to fund large infrastructure projects.
- True
- False
Answer: False
Even if the receiving state uses the funds to build a highway, from the perspective of the Central Government's accounting, Grants-in-Aid are classified as 'Revenue Expenditure.' This is because these grants do not result in the creation of any physical or financial *assets* for the Centre, nor do they reduce any of the Centre's liabilities; they are simply unconditional or conditional transfers of current income.
The 'Base Effect' refers to a situation where the current year's inflation rate appears artificially high simply because the central bank recently raised the repo rate to tighten monetary policy.
- True
- False
Answer: False
The Base Effect is a purely mathematical and statistical phenomenon related to the year-on-year comparison of price indices. If the price index in the corresponding month of the previous year (the base) was unusually low due to a temporary shock, the current year's inflation rate will mathematically appear exceptionally high, even if current prices are rising at a normal, steady pace. It has nothing to do with current repo rate actions.
Under a Fractional Reserve Banking system, commercial banks are required to keep 100% of their customers' deposits as liquid reserves in their vaults or with the central bank, preventing them from creating new credit.
- True
- False
Answer: False
Fractional reserve banking is the exact opposite; banks are only required to hold a small 'fraction' of their total deposits as reserves (dictated by the CRR and SLR). They are legally permitted to lend out the remaining vast majority of the deposits to borrowers. This lending process creates new money in the economy through the 'money multiplier' effect, which is the foundational mechanism of modern credit creation and economic expansion.
The 'Green GDP' attempts to adjust the conventional Gross Domestic Product by monetizing and subtracting the costs of environmental degradation, resource depletion, and ecological damage caused by economic activities.
- True
- False
Answer: True
Conventional GDP treats the extraction and sale of natural resources as pure income, ignoring the destruction of natural capital. Green GDP accounts for the 'bads' alongside the 'goods' by deducting the monetary value of pollution, deforestation, and loss of biodiversity. While conceptually superior for measuring sustainable development, it remains difficult to implement globally due to the complexities of accurately pricing ecological damage.
The 'National Social Assistance Programme' (NSAP) is a centrally sponsored scheme that provides financial assistance to elderly persons, widows, and persons with disabilities in the form of social pensions, exclusively targeting households Below the Poverty Line (BPL).
- True
- False
Answer: True
NSAP represents a significant commitment to social security for the most vulnerable demographics who lack any other means of subsistence. It comprises schemes like the Indira Gandhi National Old Age Pension Scheme (IGNOAPS) and the National Family Benefit Scheme. Eligibility is strictly tied to the deprivation criteria defined by the government (historically BPL, now aligned with SECC parameters), ensuring the safety net reaches the absolute poorest.
The 'National Logistics Policy' (NLP) launched in 2022 aims to reduce India's logistics costs, which are currently estimated to be around 13-14% of GDP, to single digits, making Indian goods globally competitive.
- True
- False
Answer: True
High logistics costs (driven by fragmented transport networks, complex regulatory check-posts, and poor warehousing) make Indian exports uncompetitive globally. The NLP, complemented by the PM Gati Shakti National Master Plan, seeks to create a trusted, seamless, and cost-efficient logistics ecosystem through digitization (like the Unified Logistics Interface Platform) and multi-modal connectivity, targeting a reduction in costs to match developed nations.
The 'Pradhan Mantri Kisan Maan-Dhan Yojana' (PM-KMY) is a contributory pension scheme where the central government bears 100% of the premium cost, requiring no financial contribution from the small and marginal farmers.
- True
- False
Answer: False
PM-KMY is a co-contributory pension scheme. While the Central Government matches the farmer's contribution to the pension fund, the farmer is still required to make a nominal monthly contribution (ranging from Rs. 55 to Rs. 200 depending on their age of entry) until they reach the age of 60. This shared responsibility ensures active participation and financial discipline among the beneficiaries.
The concept of 'PURA' (Providing Urban Amenities to Rural Areas), which aimed to bridge the rural-urban divide by creating physical, electronic, and knowledge connectivity, was championed by Dr. A.P.J. Abdul Kalam.
- True
- False
Answer: True
Dr. Kalam envisioned PURA as a strategic solution to curb distress migration from villages to overcrowded cities. By establishing high-quality healthcare, education, and digital infrastructure in rural hubs, the model aimed to create local economic opportunities and transform rural landscapes into self-sustaining growth centers, a vision that later influenced schemes like the Shyama Prasad Mukherji Rurban Mission.
The 'Rolling Plan' concept in India, introduced by the Janata Party government in 1978, completely abandoned the idea of fixed five-year targets in favor of an annually reviewed and continuously extended plan.
- True
- False
Answer: True
The Rolling Plan was designed to provide flexibility and adapt to changing economic realities, avoiding the rigidities of a fixed five-year horizon. It involved three parallel plans: an annual plan, a fixed five-year plan, and a perspective 15-year plan. However, it was short-lived and was discarded when the Congress party returned to power in 1980, reverting to the traditional Five-Year Plan model.
An 'Automatic Stabilizer' is a discretionary fiscal policy tool that requires the Parliament to pass a new emergency bill every time the economy enters a recession to stimulate demand.
- True
- False
Answer: False
Automatic stabilizers are built-in, non-discretionary features of the tax and welfare system that operate automatically without any new legislative action. For example, during a recession, corporate profits and incomes fall, causing tax revenues to automatically drop, while unemployment claims rise, causing welfare spending to automatically increase. This naturally injects demand into the economy, softening the blow of the recession.
The 'Udyam Registration' portal, launched by the Ministry of MSME, requires enterprises to upload extensive physical documents and pay a nominal registration fee to obtain their MSME certificate.
- True
- False
Answer: False
Udyam Registration was specifically designed to eliminate bureaucratic friction. It is a completely free, paperless, and self-declaration-based platform. It integrates seamlessly with the Income Tax and GSTN databases to automatically verify investment and turnover details, providing MSMEs with a permanent, dynamic identity without requiring them to visit any government office or submit physical proofs.
A 'Green Bond' is a fixed-income financial instrument whose proceeds are strictly earmarked and ring-fenced for projects that have positive environmental or climate-related benefits, such as renewable energy or clean transportation.
- True
- False
Answer: True
Green Bonds are identical to standard corporate or sovereign bonds in terms of their financial structure, but they carry a 'use of proceeds' covenant. Issuers must undergo rigorous third-party verification to ensure the raised capital is exclusively funding sustainable, eco-friendly projects, allowing environmentally conscious institutional investors to align their portfolios with global ESG (Environmental, Social, and Governance) goals.
The 'Kinked Demand Curve' model, developed by Paul Sweezy, explains price rigidity in an oligopoly by assuming that rival firms will match a price cut but ignore a price increase.
- True
- False
Answer: True
Sweezy's model posits that if an oligopolist raises prices, rivals will keep their prices low to steal market share (highly elastic demand above the kink). If the firm cuts prices, rivals will immediately match the cut to avoid losing customers (inelastic demand below the kink). This creates a 'kink' at the prevailing price, making the marginal revenue curve discontinuous and rendering small cost shocks incapable of changing the market price.
In the Lewis Dual Sector Model of development, the 'Turning Point' occurs when the surplus labor in the traditional agricultural sector is completely exhausted, forcing the modern industrial sector to raise wages to attract further workers.
- True
- False
Answer: True
Arthur Lewis theorized that developing economies have an unlimited supply of surplus labor in subsistence farming, allowing the industrial sector to keep wages artificially low and reap massive profits for reinvestment. The 'Lewis Turning Point' is the critical milestone where this labor surplus dries up. Beyond this point, wages must rise across the entire economy, marking the transition to a mature, developed economic structure.
A 'Safeguard Duty' is a temporary trade protection measure imposed against a specific country that is found guilty of violating WTO intellectual property rules.
- True
- False
Answer: False
Safeguard duties are not punitive measures against unfair trade practices like dumping or IP theft. Instead, they are emergency 'escape valves' applied on a Most-Favoured-Nation (MFN) basis against *all* importing countries when there is a sudden, massive, and unforeseen surge in imports that threatens to cause serious injury to the domestic industry, allowing them time to adjust.
Under the WTO's Agreement on Subsidies and Countervailing Measures (ASCM), 'Export Subsidies' (subsidies contingent upon export performance) are generally classified as prohibited 'Red Light' subsidies.
- True
- False
Answer: True
The WTO strictly prohibits export subsidies because they are explicitly designed to distort global trade by artificially lowering the price of a country's goods in foreign markets, harming competitors in other nations. If a country is found guilty of providing a prohibited Red Light subsidy, it must withdraw it immediately, or the affected countries can impose retaliatory countervailing duties.