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Generate QuizEconomics – True/False – GK Questions
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The 15th Finance Commission introduced a new criterion called 'Demographic Performance' to reward states that have successfully managed their population growth and achieved lower fertility rates.
- True
- False
Answer: True
Historically, Finance Commissions used the 1971 census data for population, which penalized states that had successfully controlled their population since then. To address this, the 15th FC used the 2011 census but introduced the 'Demographic Performance' criterion, assigning higher weightage to states with lower fertility rates to ensure they are not financially disadvantaged for their progressive social policies.
The Consolidated Fund of India, established under Article 266(1) of the Constitution, can be appropriated or drawn upon by the government without the need for specific parliamentary authorization or passing of an appropriation bill.
- True
- False
Answer: False
Article 266(1) forms the bedrock of parliamentary financial control. It explicitly states that no money can be withdrawn from the Consolidated Fund of India except under appropriation made by law. Therefore, the executive cannot spend a single rupee without the prior approval and legislative sanction of the Parliament via an Appropriation Act.
The concept of 'Hysteresis' in unemployment suggests that prolonged periods of high cyclical unemployment can permanently increase the natural rate of unemployment due to skill degradation and loss of professional networks.
- True
- False
Answer: True
Hysteresis implies that history matters; short-term economic shocks can have permanent, long-term effects. If workers remain unemployed for years, their skills become obsolete (human capital depreciation), and they become marginalized from the labor force. Thus, a severe recession can structurally damage the labor market, raising the NAIRU even after the economy recovers.
According to the IS-LM model, if an economy is in a 'Liquidity Trap', expansionary monetary policy (increasing the money supply) will be highly effective in lowering interest rates and boosting aggregate output.
- True
- False
Answer: False
In a liquidity trap, interest rates are already at or near zero, and the public prefers to hoard cash rather than buy bonds, expecting rates to rise. Consequently, the LM curve becomes perfectly horizontal, meaning any increase in the money supply will be entirely absorbed by speculative balances, failing to lower interest rates further or stimulate investment and output.
Tier 1 Capital, often referred to as core capital, primarily consists of equity shares and disclosed reserves, making it the most reliable form of capital for a bank to absorb losses on a going-concern basis.
- True
- False
Answer: True
Tier 1 capital represents the highest quality of capital because it is fully available to absorb losses without the bank being required to cease operations. It includes common equity, retained earnings, and certain disclosed reserves. In contrast, Tier 2 capital (supplementary capital like subordinated debt) is less secure and only absorbs losses on a 'gone-concern' (liquidation) basis.
In the International Monetary Fund (IMF), a member country's voting power and its quota allocation are strictly based on the principle of 'one country, one vote', ensuring absolute equality among all member nations.
- True
- False
Answer: False
Unlike the UN General Assembly, the IMF operates on a weighted voting system based on a country's financial quota, which reflects its relative size in the global economy. Consequently, advanced economies like the US and EU nations hold disproportionate voting power, while the US effectively holds veto power over major structural decisions that require an 85% supermajority.
The 'Udyam Registration' portal is an online, paperless, and self-declaration based platform introduced by the government for the registration of Micro, Small, and Medium Enterprises (MSMEs).
- True
- False
Answer: True
Launched in July 2020, Udyam Registration replaced the older Udyog Aadhaar system. It is completely free, requires no document uploads (relying instead on PAN and GSTIN integration for automatic data fetching), and provides MSMEs with a permanent, verifiable identity that allows them to easily access priority sector credit, government subsidies, and delayed payment protections.
The 'Principal-Agent Problem' arises when the agent (e.g., a corporate manager) possesses more information and acts in their own self-interest, potentially at the expense of the principal (e.g., the shareholders).
- True
- False
Answer: True
This problem is rooted in asymmetric information and misaligned incentives. Because shareholders (principals) cannot perfectly monitor the daily actions of the CEO (agent), the CEO might pursue empire-building, excessive perks, or short-term stock bumps that harm long-term company value. Corporate governance mechanisms, stock options, and audits are designed to mitigate this agency cost.
A 'Masala Bond' is a rupee-denominated bond issued by overseas entities in the international capital markets to raise funds from foreign investors, thereby transferring the currency risk to the investor.
- True
- False
Answer: True
Unlike standard external commercial borrowings (ECBs) where an Indian company borrows in USD and bears the risk of Rupee depreciation, Masala Bonds are issued and redeemed strictly in Indian Rupees. If the Rupee depreciates against the dollar, the foreign investor absorbs the loss, making it a highly effective hedging tool for Indian corporate borrowers.
Under the WTO's 'National Treatment' principle, imported goods must be treated less favorably than domestically produced goods to protect local industries from foreign competition.
- True
- False
Answer: False
The National Treatment principle mandates the exact opposite: once foreign goods have cleared customs and entered the domestic market, they must be treated *no less favorably* than identical domestically produced goods. This means the government cannot impose internal taxes, regulations, or standards on imports that discriminate against them in favor of local products.
An 'Automatic Stabilizer' in macroeconomics refers to a discretionary fiscal policy tool that the government must actively vote on and pass during a recession to stimulate demand.
- True
- False
Answer: False
Automatic stabilizers are built-in features of the tax and transfer system that operate *without* any new legislative action. During a recession, tax revenues automatically fall (due to lower incomes) and welfare spending automatically rises (due to higher unemployment claims), naturally injecting demand into the economy. Conversely, they cool down an overheating economy without requiring active government intervention.
The Multidimensional Poverty Index (MPI) developed by NITI Aayog relies solely on household income and consumption expenditure data to classify families as Below Poverty Line (BPL).
- True
- False
Answer: False
The National MPI, modeled after the Global MPI, deliberately moves away from purely income-based metrics. Instead, it assesses deprivations across three equally weighted dimensions: Health (nutrition, child mortality), Education (years of schooling, attendance), and Standard of Living (cooking fuel, sanitation, drinking water, electricity, housing, and assets).
The 'Carbon Border Adjustment Mechanism' (CBAM) proposed by the European Union is essentially a tariff levied on carbon-intensive imported goods to prevent 'carbon leakage' and protect domestic industries.
- True
- False
Answer: True
CBAM is a landmark climate policy that forces importers to buy certificates corresponding to the carbon price they would have paid if the goods were produced under EU carbon pricing rules. It aims to prevent 'carbon leakage'—where EU companies move production to countries with lax climate laws—and forces global trading partners like India to decarbonize their export sectors.
The National Infrastructure Pipeline (NIP), launched to provide a clear roadmap for infrastructure development in India, covers both economic infrastructure (like roads) and social infrastructure (like health and education).
- True
- False
Answer: True
The NIP is a massive, multi-year investment plan aimed at boosting economic growth and creating jobs. It comprehensively includes traditional economic assets like highways, railways, and power plants, but crucially also integrates social infrastructure like affordable housing, urban water supply, and healthcare facilities, recognizing their equal importance for holistic development.
One of the primary macroeconomic motivations for the RBI to introduce a retail CBDC is to counter the rising threat of private cryptocurrencies and preserve the sovereignty of the national fiat currency.
- True
- False
Answer: True
The proliferation of private cryptocurrencies poses risks to monetary policy transmission, financial stability, and capital flight. By offering a safe, sovereign-backed digital alternative that leverages modern payment technologies, the central bank can satisfy public demand for digital assets while retaining control over the money supply and the domestic payment ecosystem.
The 'Twin Balance Sheet' problem in the Indian economy refers to the simultaneous over-leveraging of corporate houses and the massive accumulation of Non-Performing Assets (NPAs) by commercial banks.
- True
- False
Answer: True
Coined in the mid-2010s, the Twin Balance Sheet problem severely stalled private investment and credit growth in India. Corporates were burdened with heavy debt from past infrastructure booms and could not invest further, while banks, choked by bad loans from these same corporates, became risk-averse and stopped lending, creating a severe macroeconomic bottleneck.
The 'Velocity of Money' refers to the speed at which physical currency notes are printed and distributed by the central bank to commercial banks.
- True
- False
Answer: False
The Velocity of Money is a macroeconomic metric that measures the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a specific time period. A high velocity indicates a booming, active economy where money changes hands rapidly, while a low velocity suggests hoarding and economic stagnation.
The 'Income Distance' criterion used by the Finance Commission to distribute funds among states favors richer, more industrialized states over poorer, less developed states.
- True
- False
Answer: False
The Income Distance criterion is designed to promote equity and reduce regional disparities. It measures the distance of a state's per capita income from the state with the highest per capita income. Therefore, poorer states with a larger 'distance' receive a higher weightage and a larger share of funds to help them catch up with the richer states.
Small Finance Banks (SFBs) in India are restricted from lending to large corporations and must ensure that at least 75% of their Adjusted Net Bank Credit (ANBC) is directed towards priority sector lending.
- True
- False
Answer: True
SFBs were conceptualized specifically to further financial inclusion by supplying credit to small business units, small and marginal farmers, micro and small industries, and unorganized sector entities. To ensure they stay true to this mandate, the RBI imposes a stringent 75% Priority Sector Lending target, which is significantly higher than the 40% mandated for universal commercial banks.
The Mahalanobis Model, which formed the mathematical foundation of India's Second Five Year Plan (1956-61), prioritized the rapid development of the consumer goods and textile industries.
- True
- False
Answer: False
The Mahalanobis strategy actually prioritized the rapid development of the *capital goods* and heavy industries (like steel, machinery, and power). The logic was that building a strong domestic capital goods base would eventually enable the mass production of consumer goods, ensuring long-term self-reliance and industrialization, albeit at the cost of short-term consumer shortages.