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VAJIRAM IAS TEST SERIES

ANSWER KEYS WITH EXPLANATION FOR G.S. TEST-2 held on 7th Feb 2016
Q.
1

Ans.
(c)

(c)

(c)

(c)

(c)

(c)

(d)

(c)

(d)

10

(b)

11

(a)

Explanation
Cash Reserve Ratio is a ratio of their total deposits which banks have to
keep with the RBI in cash. This ratio at present is 4 percent. When this
ratio is lowered, banks will have more to lend so that credit is expanded
as banks may lend even at lower rates, called cheap money policy.
Lead Bank Scheme was started in 1969 under which every public
sector bank as well as some private sector banks have been allotted
districts. They have to take the lead, i.e., responsibility to develop
infrastructure for these districts for their faster development and to
address their credit and developmental requirements.
Banks that we generally deal within our day to day life are called
Scheduled Commercial Banks, each of which must have a share capital
of Rs. 5 lakhs and above. A Scheduled Bank enjoys all the privileges of
the RBI.
An expansionary credit policy may generally be adopted during slow
down or recession so that banks issue more money to lend for
consumption and investments. The best example of this policy is QE
(Quantitative Easing) adopted by US Federal Reserve Bank over 4
years beginning 2010.
Budget deficit means deficit in the total budget which implies total
expenditure and total receipts. This deficit is no longer relevant and was
abolished w.e.f April, 1997 and replaced by Ways and Means
Advances.
State Governments earn nearly two thirds or more of their total
revenues from Sales tax which since 2005 is called Value Added tax.
By definition, a specific tax is tax imposed on the basis of any specific
attribute of a commodity, like its volume, weight, length, width, etc. Tax
based on value is called Ad Valorem Tax.
Quantitative Credit Control tools are those which impact the total
quantum of credit given by commercial banks. These are Bank Rate,
Open Market Operations, Cash Reserve Ratio, Statutory Liquidity Ratio
and Repo/Reverse Repo.
Inelastic demand means that even if price of a commodity increases
due to higher tax, its demand does not come down as people may be
habitual of using that commodity like alcohol, cigarettes, etc.
Please see explanation of Q. No. 7 which clearly distinguishes specific
tax from Ad Valorem tax which is essentially based on price/value of a
commodity purchased.
Some experts believe that banking sector in India is burdened with
rising NPAs as it is suffering from double financial repression i.e.

Vajiram and Ravi (Prelim) GS Test 2 (07-02-16 Indian Economy and C.A.)

VAJIRAM IAS TEST SERIES

12

(d)

13

(d)

14

(d)

15

(d)

16

(b)

17
18
19
20
21

(c)
(a)
(d)
(c)
(b)

22

(d)

23

(d)

24
25
26

(a)
(d)
(d)

27

(d)

financial burden both on the asset side as well as liability side. On the
asset side, it is burdened with high SLR requirement and priority sector
lending and on the liability side with inflation in the sense that due to
high rate of inflation, people earn negative returns on their bank
deposits as a result of which they do not prefer to save more in the form
of bank deposits.
Except Service tax all the other taxes are direct taxes. Expenditure tax
is just the reverse of Income tax under which total expenditure is taken
as the basis for taxation.
Union Budget every year presents receipt and expenditure standards
for all the three years viz. financial year, current year and the following
year. Please see any Budget in this regard.
Macroeconomic vulnerability implies that a countrys economy in totality
is vulnerable both in terms of internal parameters viz. rate of inflation
and high fiscal deficit as well as external parameters viz., high current
account deficit on its balance of payments. Such vulnerability calls for
urgent policy initiatives.
Fiscal consolidation is a very broad term which includes every such
measure which on the one hand, reduces expenditure and on the other
hand, raises revenues. In this regard, techniques like outcome
budgeting, zero-based budgeting, reducing non-plan expenditure are all
included.
These are all some of the important projections and proposals of the
Union Budget 2015-16. The Budget has abolished wealth tax and in its
place imposed additional 2 per cent surcharge on super rich.

Fiscal Policy is always associated with government expenditure or


revenue.
Real GDP is calculated by adjusting nominal GDP for inflation. It has
not decreased anytime during the last decade. Although the growth rate
of real GDP has decreased during some years.
Depreciation is likely to increase any revenue item of BOP even if it is
not always necessary.

2, 3, & 4 are clearly needed for inclusive growth. But without higher
national income, many of the inclusive growth policies cant be
financed. So, 1 is also true.
All the factors can increase production costs in economy and hence
supply-side constraints. Lower agricultural growth pushes up food
prices and hence wages in the unorganized sector increasing
production cost.

Vajiram and Ravi (Prelim) GS Test 2 (07-02-16 Indian Economy and C.A.)

VAJIRAM IAS TEST SERIES


28
29

(b)
(c)

30

(c)

31
32
33

(a)
(b)
(d)

34

(a)

35

(c)

36
37

(d)
(c)

38
39
40
41
42
43

(c)
(d)
(c)
(c)
(a)
(d)

44
45
46
47

(a)
(c)
(d)
(a)

48
49

(b)
(d)

50
51

(c)
(a)

52
53
54
55
56
57

(c)
(c)
(d)
(b)
(b)
(b)

Both industries and agriculture were growing remarkably during 1980s.


FDI inflows are very old to India. The heavy industrialization of India
immediately after independence benefitted from FDI.
FDI cannot reduce CAD. It can only finance it so that BOP deficit can be
avoided.
India had its first Plan Holiday during 1966-69.
Hindu rate of growth implies lower rate of growth (generally below 4%
p.a). From 5th FYP (Post 1974-75), India came out of it.
GDP growth rate can approximately be given as a ratio of the Savings
rate and ICOR.
Contractionary Monetary Policy leads to lower GDP & Per capita
income growth leading to lower import demand thus controlling
depreciation. Devaluation will worsen depreciation further.
BOP is associated with International transactions only (exports, imports,
foreign loans etc.)

Subsidy is given by government and hence a fiscal policy instrument.

If GDP growth is higher than population growth, then Per capita income
increases despite higher population. Higher Per capita income may also
result from higher income inequality which is against inclusive growth
principle.
NFIFA can be negative or positive.

Austerity measures are a type of contractionary policy which decreases


the level of Effective demand (the level of output or GDP actually
produced in the economy by interaction between all producers and
consumers)
NEER needs to be adjusted for relative price levels in two countries to
arrive at REER.
Bank Rate is charged as interest rate for WMAs.
Bangladesh has existing missions in Delhi, Mumbai, Kolkata and
Agartala.
New name is West Philippines Sea.

Presently there are 11 states with Special Category Status Andhra

Vajiram and Ravi (Prelim) GS Test 2 (07-02-16 Indian Economy and C.A.)

VAJIRAM IAS TEST SERIES


Pradesh is demanding for the Special Category Status. The parameters
required for Special Category Status include Hilly and difficult terrain,
Low population density or Sizeable share of tribal population, Strategic
location along borders with neighbouring countries, Economic and
infrastructural backwardness, Non-viable nature of state finances.
58
59

(d)
(b)

60

(c)

61

(b)

62

(d)

63
64

(c)
(a)

65

(b)

66
67
68
69
70
71

(a)
(d)
(d)
(a)
(d)
(b)

72

(c)

73
74
75
76

(c)
(d)
(a)
(d)

77
78
79

(c)
(d)
(c)

The Turkmenistan-Afghanistan- Pakistan-India Natural Gas Pipelines


(TAPI) Project is a proposed natural gas pipeline being developed with
assistance from the Asian Development Bank.
PFBR uses Plutonium-Uranium oxide as fuel and liquid Sodium as
coolant.
SCO is a political, economic and military organization; it is seen as a
counter to the North Atlantic Treaty Organisation.
It consists of a Chairman and 4 members. Chairman should be a retired
Chief Justice of India. Members should be either sitting or retired judges
of the Supreme Court or a serving or retired Chief Justice of a High
Court and 2 persons having practical knowledge in this field.
The Sendai Framework for Disaster Risk Reduction 2015-2030 was
adopted during the Third UN World Conference on Disaster Risk
Reduction held in Sendai, Japan.
Currently, India has Observer status in CERN, which has 22 member
states. India was given Observer status in 2002.

GHI is released annually by International Food Policy Research Institute


(IFPRI).
The early warning system at Uttarakhand will issue warnings 1-40
seconds before earthquakes of magnitude 5 occur.

A farmer is required to pay just 2% premium for Kharif crops and 1.5%
premium for Rabi Crops and the remaining premium amount will be
paid by the central government and state government.
(2) A farmer will be paid 25% of the compensation directly into the
farmers bank account.
(3) The scheme provides coverage against localized risks of hailstorm,
landslides and inundation also.

Vajiram and Ravi (Prelim) GS Test 2 (07-02-16 Indian Economy and C.A.)

VAJIRAM IAS TEST SERIES


80
81

(d)
(d)

82

(a)

83

(d)

84

(d)

85

(b)

86

(a)

87
88
89

(a)
(c)
(b)

90
91
92
93
94
95

(c)
(b)
(d)
(d)
(d)
(a)

The Eurasian Economic Union (EEU) comprises 5 member states,


which are Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.
In the food industry, MSG is used as a taste enhancer that increases
the meaty, savoury flavour of food.
The eight core sector industries are Refinery Products, Natural Gas,
Electricity, Crude Oil, Coal, Fertiliser, Steel and Cement.
The State of Conservation Report on World Heritage Site has been
published by United Nations Educational, Scientific and Cultural
Organisation (UNESCO).
India has recently made it clear that it will not take any unilateral
decision on the Tipaimukh Hydro-Electric Power Project which may
adversely affect Bangaldesh. This was stated in a joint declaration
between Bangladesh and India.
The New Development Bank (NDB) was formerly referred to as the
BRICS Development Bank. Its Headquarter is in Shanghai.
India has launched I Led The Way campaign to save energy by
switching to LED bulbs.
Shinkansen technology is nothing but technology of bullet train.

Island
1 Diaoyu
.
2 Kuril
.
3 Falkland
.
96
97
98
99
100

Dispute
between
: China-Japan
: Russia-Japan
: UK-Argentina

(d)
(d)
(d)
(b)
(c)

Vajiram and Ravi (Prelim) GS Test 2 (07-02-16 Indian Economy and C.A.)