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Question 1 of 10
1. Question
2 points
The total market value of all finished goods and services produced within a country in a set time period is
Correct
Gross National Income (GNI)
GNI is the total amount of money earned by a nation’s people and businesses. It is used to
measure and track a nation’s wealth from year to year. The number includes the nation’s gross
domestic product plus the income it receives from overseas sources.
GNI is an alternative to gross domestic product (GDP) as a means of measuring and tracking a
nation’s wealth and is considered a more accurate indicator for some nations.
Understanding GNI
GNI calculates the total income earned by a nation’s people and businesses, including
investment income, regardless of where it was earned. It also covers money received from
abroad such as foreign investment and economic development aid.
GDP is the total market value of all finished goods and services produced within
a country in a set time period. Hence, option (c) is correct.
GNI is the total income received by the country from its residents and businesses
regardless of whether they are located in the country or abroad.
GNP includes the income of all of a country’s residents and businesses whether it flows
back to the country or is spent abroad. It also adds subsidies and taxes from foreign
Converting GDP to GNI
To convert a nation’s GDP to GNI, three terms need to be added to the former:
1) Foreign income paid to resident employees,
2) Foreign income paid to residential property owners and investors, and
3) net taxes minus subsidies receivable on production and imports.
Incorrect
Gross National Income (GNI)
GNI is the total amount of money earned by a nation’s people and businesses. It is used to
measure and track a nation’s wealth from year to year. The number includes the nation’s gross
domestic product plus the income it receives from overseas sources.
GNI is an alternative to gross domestic product (GDP) as a means of measuring and tracking a
nation’s wealth and is considered a more accurate indicator for some nations.
Understanding GNI
GNI calculates the total income earned by a nation’s people and businesses, including
investment income, regardless of where it was earned. It also covers money received from
abroad such as foreign investment and economic development aid.
GDP is the total market value of all finished goods and services produced within
a country in a set time period. Hence, option (c) is correct.
GNI is the total income received by the country from its residents and businesses
regardless of whether they are located in the country or abroad.
GNP includes the income of all of a country’s residents and businesses whether it flows
back to the country or is spent abroad. It also adds subsidies and taxes from foreign
Converting GDP to GNI
To convert a nation’s GDP to GNI, three terms need to be added to the former:
1) Foreign income paid to resident employees,
2) Foreign income paid to residential property owners and investors, and
3) net taxes minus subsidies receivable on production and imports.
Question 2 of 10
2. Question
2 points
Which of the following was/were the policy reforms under Washington Consensus?
Interest rate liberalisation
Liberalisation of FDI inflows
Fiscal discipline
Secure property rights
Select the correct answer using the code given below:
Correct
Washington consensus
The term ‘Washington Consensus’ was coined by the US economist John Williamson (in 1989)
under which he had suggested a set of policy reforms which most of the official in Washington
(i.e., International Monetary Fund and World Bank) thought would be good for the crisis-
driven Latin American countries of the time.
The policy reforms included ten propositions:
(i) Fiscal discipline
(ii) A redirection of public expenditure priorities toward fields offering both high
economic returns and the potential to improve income distribution, such as primary
health care, primary education, and infrastructure.
(iii) Tax reform (to lower marginal rates and broaden the tax base)
(iv) Interest rate liberalisation
(v) A competitive exchange rate
(vi) Trade liberalisation
(vii) Liberalisation of FDI inflows
(viii) Privatisation
(ix) Deregulation (in the sense of abolishing barriers to entry and exit)
(x) Secure property rights
All the above are correct.
However, in coming times, the term became synonymous to neo-liberalism (in Latin America),
market fundamentalism (as George Soros told in 1998) and even globalization across the
It has often been used to describe an extreme and dogmatic commitment to the belief
that markets can handle everything.
Incorrect
Washington consensus
The term ‘Washington Consensus’ was coined by the US economist John Williamson (in 1989)
under which he had suggested a set of policy reforms which most of the official in Washington
(i.e., International Monetary Fund and World Bank) thought would be good for the crisis-
driven Latin American countries of the time.
The policy reforms included ten propositions:
(i) Fiscal discipline
(ii) A redirection of public expenditure priorities toward fields offering both high
economic returns and the potential to improve income distribution, such as primary
health care, primary education, and infrastructure.
(iii) Tax reform (to lower marginal rates and broaden the tax base)
(iv) Interest rate liberalisation
(v) A competitive exchange rate
(vi) Trade liberalisation
(vii) Liberalisation of FDI inflows
(viii) Privatisation
(ix) Deregulation (in the sense of abolishing barriers to entry and exit)
(x) Secure property rights
All the above are correct.
However, in coming times, the term became synonymous to neo-liberalism (in Latin America),
market fundamentalism (as George Soros told in 1998) and even globalization across the
It has often been used to describe an extreme and dogmatic commitment to the belief
that markets can handle everything.
Question 3 of 10
3. Question
2 points
Consider the following statements regarding Gross Domestic product (GDP)
If the GDP of the country is rising, the welfare will rise as a consequence.
Many activities in an economy are not evaluated in monetary terms and hence, they are not
included in calculating GDP.
Which of the statements given above is/are correct?
Correct
Answer Justification :
GDP is the sum total of value of goods and services created within the geographical boundary
of a country in a particular year. It gets distributed among the people as incomes (except for
retained earnings). So we may be tempted to treat higher level of GDP of a country as an index
of greater well-being of the people of that country (to account for price changes, we may take
the value of real GDP instead of nominal GDP).
But there are at least three reasons why this may not be correct.
Distribution of GDP – how uniform is it: If the GDP of the country is rising, the welfare may not rise as a consequence. Hence, statement 1 is incorrect. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased.
Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges, goods (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity.
Externalities: Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalised). Externalities do not have any market in which they can be bought and sold.
Incorrect
Answer Justification :
GDP is the sum total of value of goods and services created within the geographical boundary
of a country in a particular year. It gets distributed among the people as incomes (except for
retained earnings). So we may be tempted to treat higher level of GDP of a country as an index
of greater well-being of the people of that country (to account for price changes, we may take
the value of real GDP instead of nominal GDP).
But there are at least three reasons why this may not be correct.
Distribution of GDP – how uniform is it: If the GDP of the country is rising, the welfare may not rise as a consequence. Hence, statement 1 is incorrect. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased.
Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges, goods (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity.
Externalities: Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalised). Externalities do not have any market in which they can be bought and sold.
Question 4 of 10
4. Question
2 points
Which of the following forms the part of assets of any bank?
Reserves
Loans
Deposits
Which of the statements given above are correct?
Correct
Banks can lend simply because they do not expect all the depositors to withdraw what they
have deposited at the same time. When the banks lend to any person, a new deposit is opened
in that person’s name. Thus money supply increases to old deposits plus new deposit (plus
) Let us take an example. Assume that there is only one bank in the country. Let us
construct a fictional balance sheet for this bank. Balance sheet is a record of assets and
liabilities of any firm. Conventionally, the assets of the firm are recorded on the left-hand side
and liabilities on the right-hand side. Accounting rules say that both sides of the balance sheet
must be equal or total assets must be equal to the total liabilities. Assets are things a firm
owns or what a firm can claim from others. In case of a bank, apart from buildings, furniture,
, its assets are loans given to public. When the bank gives out loan of Rs 100 to a person,
this is the bank’s claim on that person for Rs 100. Another asset that a bank has is reserves.
Reserves are deposits which commercial banks keep with the Central bank, Reserve Bank of
India (RBI) and its cash. These reserves are kept partly as cash and partly in the form of
financial instruments (bonds and treasury bills) issued by the RBI. Reserves are similar to
deposits we keep with banks. We keep deposits and these deposits are our assets, they can be
withdrawn by us. Similarly, commercial banks like State Bank of India (SBI) keep their
deposits with RBI and these are called Reserves.
Assets = Reserves + Loans
Liabilities for any firm are its debts or what it owes to others. For a bank, the main
liability is the deposits which people keep with it. Hence, statement 3 is incorrect.
Liabilities = Deposits
Incorrect
Banks can lend simply because they do not expect all the depositors to withdraw what they
have deposited at the same time. When the banks lend to any person, a new deposit is opened
in that person’s name. Thus money supply increases to old deposits plus new deposit (plus
) Let us take an example. Assume that there is only one bank in the country. Let us
construct a fictional balance sheet for this bank. Balance sheet is a record of assets and
liabilities of any firm. Conventionally, the assets of the firm are recorded on the left-hand side
and liabilities on the right-hand side. Accounting rules say that both sides of the balance sheet
must be equal or total assets must be equal to the total liabilities. Assets are things a firm
owns or what a firm can claim from others. In case of a bank, apart from buildings, furniture,
, its assets are loans given to public. When the bank gives out loan of Rs 100 to a person,
this is the bank’s claim on that person for Rs 100. Another asset that a bank has is reserves.
Reserves are deposits which commercial banks keep with the Central bank, Reserve Bank of
India (RBI) and its cash. These reserves are kept partly as cash and partly in the form of
financial instruments (bonds and treasury bills) issued by the RBI. Reserves are similar to
deposits we keep with banks. We keep deposits and these deposits are our assets, they can be
withdrawn by us. Similarly, commercial banks like State Bank of India (SBI) keep their
deposits with RBI and these are called Reserves.
Assets = Reserves + Loans
Liabilities for any firm are its debts or what it owes to others. For a bank, the main
liability is the deposits which people keep with it. Hence, statement 3 is incorrect.
Liabilities = Deposits
Question 5 of 10
5. Question
2 points
Consider the following statements regarding Open Market Operations
Open Market Operations refers to buying and selling of bonds issued by the Government in the open market.
Selling of a bond by RBI leads to increases in the total amount of reserves in the economy and thus increases the money supply.
Which of the statements given above is/are correct?
Correct
Open Market Operations refers to buying and selling of bonds issued by the
Government in the open market. This purchase and sale is entrusted to the Central bank on
behalf of the Government. When RBI buys a Government bond in the open market, it pays for it
by giving a cheque. This cheque increases the total amount of reserves in the economy and
thus increases the money supply. Selling of a bond by RBI (to private individuals or
institutions) leads to reduction in quantity of reserves and hence the money supply.
Hence, statement 2 is incorrect.
There are two types of open market operations: outright and repo. Outright open market
operations are permanent in nature: when the central bank buys these securities (thus
injecting money into the system), it is without any promise to sell them later. Similarly, when
the central bank sells these securities (thus withdrawing money from the system), it is without
any promise to buy them later. As a result, the injection/absorption of the money is of
permanent nature.
However, there is another type of operation in which when the central bank buys the security,
this agreement of purchase also has specification about date and price of resale of this
This type of agreement is called a repurchase agreement or repo. The interest rate at
which the money is lent in this way is called the repo rate. Similarly, instead of outright sale of
securities the central bank may sell the securities through an agreement which has a
specification about the date and price at which it will be repurchased. This type of agreement
is called a reverse repurchase agreement or reverse repo. The rate at which the money is
withdrawn in this manner is called the reverse repo rate.
Incorrect
Open Market Operations refers to buying and selling of bonds issued by the
Government in the open market. This purchase and sale is entrusted to the Central bank on
behalf of the Government. When RBI buys a Government bond in the open market, it pays for it
by giving a cheque. This cheque increases the total amount of reserves in the economy and
thus increases the money supply. Selling of a bond by RBI (to private individuals or
institutions) leads to reduction in quantity of reserves and hence the money supply.
Hence, statement 2 is incorrect.
There are two types of open market operations: outright and repo. Outright open market
operations are permanent in nature: when the central bank buys these securities (thus
injecting money into the system), it is without any promise to sell them later. Similarly, when
the central bank sells these securities (thus withdrawing money from the system), it is without
any promise to buy them later. As a result, the injection/absorption of the money is of
permanent nature.
However, there is another type of operation in which when the central bank buys the security,
this agreement of purchase also has specification about date and price of resale of this
This type of agreement is called a repurchase agreement or repo. The interest rate at
which the money is lent in this way is called the repo rate. Similarly, instead of outright sale of
securities the central bank may sell the securities through an agreement which has a
specification about the date and price at which it will be repurchased. This type of agreement
is called a reverse repurchase agreement or reverse repo. The rate at which the money is
withdrawn in this manner is called the reverse repo rate.
Question 6 of 10
6. Question
2 points
National Crisis Management Committee (NCMC) is chaired by
Correct
National Crisis Management Committee(NCMC):
For effective implementation of relief measures in the wake of natural calamities, the
Government of India has set up a National Crisis Management Committee.
Cabinet Secretary is it’s Chairman. Hence, option (c) is correct.
Other members: Secretaries of all the concerned Ministries /Departments as well as
organizations are the members of the Committee.
The NCMC gives direction to the Crisis Management Group as deemed necessary.
Incorrect
National Crisis Management Committee(NCMC):
For effective implementation of relief measures in the wake of natural calamities, the
Government of India has set up a National Crisis Management Committee.
Cabinet Secretary is it’s Chairman. Hence, option (c) is correct.
Other members: Secretaries of all the concerned Ministries /Departments as well as
organizations are the members of the Committee.
The NCMC gives direction to the Crisis Management Group as deemed necessary.
Question 7 of 10
7. Question
2 points
McMahon line, often seen in news is border line between
Correct
India- China Border:
India and China share a 3,488 km long boundary. Unfortunately, the entire boundary is
The line, which delineates the boundary between the two countries, is popularly
called the McMahon line, after its author Sir Henry McMahon. Hence, option (d) is
In 1913, the British-India government had called a tripartite conference, in which the
boundary between India and Tibet was formalized after a discussion between the Indian and
the Tibetans. A Convention was adopted, which resulted in the delimitation of the Indo-Tibetan
This boundary is, however, disputed by China which terms it as illegal.
In 1957, China occupied Aksai Chin and built a road through it. This episode was
followed by intermittent clashes along the border, which finally culminated in the border war
of 1962. The boundary, which came into existence after the war, came to be known as Line of
Actual Control (LAC). It is a military held line.
Incorrect
India- China Border:
India and China share a 3,488 km long boundary. Unfortunately, the entire boundary is
The line, which delineates the boundary between the two countries, is popularly
called the McMahon line, after its author Sir Henry McMahon. Hence, option (d) is
In 1913, the British-India government had called a tripartite conference, in which the
boundary between India and Tibet was formalized after a discussion between the Indian and
the Tibetans. A Convention was adopted, which resulted in the delimitation of the Indo-Tibetan
This boundary is, however, disputed by China which terms it as illegal.
In 1957, China occupied Aksai Chin and built a road through it. This episode was
followed by intermittent clashes along the border, which finally culminated in the border war
of 1962. The boundary, which came into existence after the war, came to be known as Line of
Actual Control (LAC). It is a military held line.
Question 8 of 10
8. Question
2 points
Consider the following statements regarding Shukrayaan Mission
It is a mission by ISRO to study Venus.
Venus is often described as the “twin sister” of the Earth because of the similarities in size,
mass, density, bulk composition and gravity.
The satellite is planned to be launched onboard GSLV Mk III rocket.
Which of the statements given above are correct?
Correct
ISRO’s Shukrayaan:
Context:
The Indian Space Research Organisation (ISRO) has short-listed 20 space-based
experiment proposals for its proposed Venus orbiter mission ‘Shukrayaan’.
About Shukrayaan:
It is a mission to study Venus for more than four years.
Scientific objectives: Investigation of the surface processes and shallow subsurface
stratigraphy; and solar wind interaction with Venusian Ionosphere, and studying the structure,
composition and dynamics of the atmosphere.
The satellite is planned to be launched onboard GSLV Mk II rocket. Hence, statement
3 is incorrect.
The proposed orbit is expected to be around 500 x 60,000 km around Venus. This orbit is
likely to be reduced gradually, over several months to a lower apoapsis (farthest point).
Why study Venus?
Venus is often described as the “twin sister” of the Earth because of the similarities in
size, mass, density, bulk composition and gravity.
It is believed that both planets share a common origin, forming at the same time out of a
condensing nebulosity around 4.5 billion years ago.
Venus is around 30 per cent closer to the Sun as compared to Earth resulting in
much higher solar flux.
The payload capability of the proposed 2500-kg satellite, planned to be launched
onboard GSLV Mk II rocket, is likely to be 175 kg with 500W of power.
Incorrect
ISRO’s Shukrayaan:
Context:
The Indian Space Research Organisation (ISRO) has short-listed 20 space-based
experiment proposals for its proposed Venus orbiter mission ‘Shukrayaan’.
About Shukrayaan:
It is a mission to study Venus for more than four years.
Scientific objectives: Investigation of the surface processes and shallow subsurface
stratigraphy; and solar wind interaction with Venusian Ionosphere, and studying the structure,
composition and dynamics of the atmosphere.
The satellite is planned to be launched onboard GSLV Mk II rocket. Hence, statement
3 is incorrect.
The proposed orbit is expected to be around 500 x 60,000 km around Venus. This orbit is
likely to be reduced gradually, over several months to a lower apoapsis (farthest point).
Why study Venus?
Venus is often described as the “twin sister” of the Earth because of the similarities in
size, mass, density, bulk composition and gravity.
It is believed that both planets share a common origin, forming at the same time out of a
condensing nebulosity around 4.5 billion years ago.
Venus is around 30 per cent closer to the Sun as compared to Earth resulting in
much higher solar flux.
The payload capability of the proposed 2500-kg satellite, planned to be launched
onboard GSLV Mk II rocket, is likely to be 175 kg with 500W of power.
Question 9 of 10
9. Question
2 points
Consider the following statements regarding Currency Note
Fiat money do not have intrinsic value like a gold or silver coin.
Legal tenders can be refused by anyone as a mode of payment.
Which of the statements given above is/are correct?
Correct
produces the note to RBI, or any other commercial bank, RBI will be responsible for giving the
person purchasing power equal to the value printed on the note. The same is also true of coins.
Currency notes and coins are therefore called fiat money. They do not have intrinsic
value like a gold or silver coin. They are also called legal tenders as they cannot be
refused by any citizen of the country for settlement of any kind of transaction. Hence,
statement 2 is incorrect.
Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode
of payment. Hence, demand deposits are not legal tenders.
Incorrect
produces the note to RBI, or any other commercial bank, RBI will be responsible for giving the
person purchasing power equal to the value printed on the note. The same is also true of coins.
Currency notes and coins are therefore called fiat money. They do not have intrinsic
value like a gold or silver coin. They are also called legal tenders as they cannot be
refused by any citizen of the country for settlement of any kind of transaction. Hence,
statement 2 is incorrect.
Cheques drawn on savings or current accounts, however, can be refused by anyone as a mode
of payment. Hence, demand deposits are not legal tenders.
Question 10 of 10
10. Question
2 points
Consider the following statements regarding Money supply
The total stock of money in circulation among the public at a particular point of time is called
money supply.
M1 and M2 are known as broad money.
Which of the statements given above is/are correct?
Correct
Money supply, like money demand, is a stock variable. The total stock of money in
circulation among the public at a particular point of time is called money supply. RBI
publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
They are defined as follows
M1 = CU + DD
M2 = M1 + Savings deposits with Post Office savings banks
M3 = M1 + Net time deposits of commercial banks
M4 = M3 + Total deposits with Post Office savings organizations (excluding
National Savings Certificates)
where, CU is currency (notes plus coins) held by the public and DD is net demand deposits
held by commercial banks. The word ‘net’ implies that only deposits of the public held by the
banks are to be included in money supply. The interbank deposits, which a commercial bank
holds in other commercial banks, are not to be regarded as part of money supply.
M1 and M2 are known as narrow money. Hence, statement 2 is incorrect.
M3 and M4 are known as broad money. These measures are in decreasing order of liquidity.
M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most
commonly used measure of money supply. It is also known as aggregate monetary resources.
Incorrect
Money supply, like money demand, is a stock variable. The total stock of money in
circulation among the public at a particular point of time is called money supply. RBI
publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
They are defined as follows
M1 = CU + DD
M2 = M1 + Savings deposits with Post Office savings banks
M3 = M1 + Net time deposits of commercial banks
M4 = M3 + Total deposits with Post Office savings organizations (excluding
National Savings Certificates)
where, CU is currency (notes plus coins) held by the public and DD is net demand deposits
held by commercial banks. The word ‘net’ implies that only deposits of the public held by the
banks are to be included in money supply. The interbank deposits, which a commercial bank
holds in other commercial banks, are not to be regarded as part of money supply.
M1 and M2 are known as narrow money. Hence, statement 2 is incorrect.
M3 and M4 are known as broad money. These measures are in decreasing order of liquidity.
M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most
commonly used measure of money supply. It is also known as aggregate monetary resources.
