Economy previous year questions UPSC

Economy and its importance in UPSC prelims

Economics is an important subject in the UPSC prelims exam as it covers a significant portion of the General Studies paper. The economic section covers topics such as national income, economic growth, poverty, inflation, fiscal policy, monetary policy, international trade, and global economic issues.
It is essential for UPSC aspirants to have a good understanding of economics as it is directly linked to the Indian economy, which is a crucial component of the country’s development. It also plays a vital role in shaping India’s relations with other countries and in implementing policies that impact the country’s growth and development.

The importance of economics in UPSC prelims can be gauged from the fact that questions related to economic concepts and policies are frequently asked in the General Studies paper. A thorough understanding of economic principles can help aspirants answer these questions more confidently and accurately. Moreover, as a Civil Services aspirant, it is essential to understand the economic issues and challenges faced by the country and develop policy solutions to address them. Thus, economics plays a vital role in preparing the aspirants for their future role as administrators and policy-makers.

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Practicing previous year questions is one of the most effective ways to prepare for any exam. By practicing these questions, you can get an idea about the exam pattern, the type of questions asked, and the difficulty level of the exam. It also helps you to identify your strengths and weaknesses, which in turn helps you to focus on the topics that need more attention. Additionally, practicing previous year questions can boost your confidence and reduce exam anxiety.

Previous year questions

2022 UPSC Prelims Economy Questions

1.“Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which of the following:

1. Asian Development Bank
2. International Monetary Fund
3. United Nations Environment Programme Finance Initiative
4. World Bank

2. With reference to the Indian economy, consider the following statements:

1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

Which of the above statements are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

3. With reference to the Indian economy, consider the following statements:

1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

4.With reference to the “G20 Common Framework”, consider the following statements:

1. It is an initiative endorsed by the G20 together with the Paris Club.
2. It is an initiative to support Low Income Countries with unsustainable debt.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

5.With reference to the India economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”?

1. Government can reduce the coupon rates on its borrowing by way of IIBs.
2. IIGs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

6. With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct?

1. They can sell their own goods in addition to offering their platforms as market-places.
2. The degree to which they can own big sellers on their platforms is limited.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

7. Which of the following activities constitute real sector in the economy?

1. Farmers harvesting their crops
2. Textile mills converting raw cotton into fabrics
3. A commercial bank lending money to a trading company
4. A corporate body issuing Rupee Denominated Bonds overseas

(a) 1 and 2 only

(b) 2, 3 and 4 only

(c) 1, 3 and 4 only

(d) 1, 2, 3 and 4

8. Which one of the following situations best reflects “Indirect Transfers” often talked about in media recently with reference to India?

(a) An Indian company investing in a foreign enterprise and paying taxes to the foreign country on the profits arising out of its investment

(b) A foreign company investing in India and paying taxes to the country of its base on the profits arising out of its investment

(c) An Indian company purchases tangible assets in a foreign country and sells such assets after their value increases and transfers the proceeds to India

(d) A foreign company transfers shares and such shares derive their substantial value from assets located in India

9. With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?

1. Acquiring new technology is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below:

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

10. With reference to the Indian economy, consider the following statements:

1. A share of the household financial savings goes towards government borrowings.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt.

Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

11. With reference to Ayushman Bharat Digital Mission, consider the following statements:

1. Private and public hospitals must adopt it.
2. As it aims to achieve universal health coverage, every citizen of India should be part of it ultimately.
3. It has seamless portability across the country.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

12. Consider the following statements:

1. Tight monetary policy of US Federal Reserve could lead to capital flight.
2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
3. Devaluation of domestic currency decreases the currency risk associated with ECBS.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

13. Consider the following statements:

1. In India, credit rating agencies are regulated by Reserve Bank of India.
2. The rating agency popularly known as ICRA is a public limited company.
3. Brickwork Ratings is an Indian credit rating agency.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

14. With reference to the ‘Banks Board Bureau (BBB)’, which of the following statements are correct?

1. The Governor of RBI is the Chairman of BBB.
2. BBB recommends for the selection of heads for Public Sector Banks.
3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

15. Convertible Bonds, consider the following statements:

1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

16. In India, which one of the following is responsible for maintaining price stability by controlling inflation?

(a) Department of Consumer Affairs

(b) Expenditure Management Commission

(c) Financial Stability and Development Council

(d) Reserve Bank of India

17. With reference to Non-Fungible Tokens (NFTs), consider the following statements:

1. They enable the digital representation of physical assets.
2. They are unique cryptographic tokens that exist on a blockchain.
3. They can be traded or exchanged at equivalency and therefore can be used as a medium transactions. of commercial

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

c) 1 and 3 only

(d) 1, 2 and 3

18. In India, which one of the following compiles information on industrial disputes, closures, retrenchments and lay-offs in factories employing workers?

1. Central Statistics Office
2. Department for Promotion of Industry and Internal Trade
3. Labour Bureau
4. National Technical Manpower Information System

2021 UPSC Prelims Economy Questions

1. The money multiplier in an economy increases with which one of the following?

a) Increase in the Cash Reserve Ratio in the banks.
b) Increase in the Statutory Liquidity Ratio in the banks
c) Increase in the banking habit of the people
d) Increase in the population of the country

2. With reference to the Indian economy, demand-pull inflation can be caused/increased by which of the following?

1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing wages
4. Higher purchasing power
5. Rising interest rates

Select the correct answer using the code given below.
a) 1, 2 and 4 only
b) 3, 4 and 5 only
c) 1, 2, 3 and 5 only
d) 1, 2, 3, 4 and 5

3. With reference to India, consider the following statements:
1. Retail investors through Demat account can invest in Treasury Bills and Government of India Debt Bonds in the primary market
2. The “Negotiated Dealing System-Ordering Matching” is a government securities trading platform of the Reserve Bank of India.
3. The “Central Depository Services Ltd” is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.
Which of the statements given above is/are correct?
a) 1 only
b) 1 and 2
c) 3 only
d) 2 and 3

4. In India, the Central Bank’s function as the “lender of last resort” usually refers to which of the following?

1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits

Select the correct answer using the code given below
a) 1 and 2
b) 2 only
c) 2 and 3
d) 3 only

5. Consider the following statements:

1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in the public interest.
3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

6. With reference to the casual workers employed in India, consider the following statements:

1. All casual workers are entitled to employees Provident Fund Coverage
2. All casual workers are entitled to regular working hours and overtime payment
3. The government can by notification specify that an establishment or industry shall pay wages only through its bank account.

Which of the above statements are correct?
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

7. Which among the following steps is most likely to be taken at the time of an economic recession?
a) Cut in tax rates accompanied by increase in interest rate
b) Increase in expenditure on public projects
c) Increase in tax rates accompanied by reduction of interest rate
d) Reduction of expenditure on public projects

8. Consider the following statements

Other things remaining unchanged, market demand for a good might increase if

1. Price of its substitute increases
2. Price of its complement increases
3. The good is an inferior good and income of the consumers increases
4. Its price falls

Which of the above statements are correct?
a) 1 and 4 only
b) 2, 3 and 4
c) 1, 3 and 4
d) 1, 2 and 3

9. With reference to Urban Cooperative Banks in India, consider the following statements:

1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1996
Which of the statements given above is/are correct?
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3

10. Indian Government Bond yields are influenced by which of the following?

1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates.

Select the correct answer using the code given below
a) 1 and 2 only
b) 2 only
c) 3 only
d) 1, 2 and 3

11. Consider the following:

1. Foreign currency convertible bonds
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits

Which of the above can be included in Foreign Direct Investments?

a) 1, 2 and 3
b) 3 only
c) 2 and 4
d) 1 and 4

12. Consider the following statements:

The effect of the devaluation of a currency is that it necessarily

1. Improves the competitiveness of the domestic exports in the foreign markets
2. Increase the foreign value of the domestic currency
3. Improves the trade balance

Which of the above statements is/are

a) 1 only
b) 1 and 2
c) 3 only
d) 2 and 3

13. Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

a) Diversion of resources to the purchase of real estate and investment in luxury housing
b) Investment in unproductive activities and purchase of precious stones, jewellery, gold etc.
c) Large donations to political parties and growth of regionalism
d) Loss of revenue to the State Exchequer due to tax evasion

14. Which one of the following is likely to be one of the most inflationary in its effects?

a) Repayment of public debt
b) Borrowing from the public to finance a budget deficit
c) Borrowing from the banks to finance a budget deficit
d) Creation of new money to finance a budget deficit

Solution

2020 UPSC Prelims Economy Questions

1. What is the importance of the term “Interest Coverage Ratio” of a firm in India?

(1)It helps in understanding the present risk of a firm that a bank is going to give a loan to.

(2) It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.

(3) The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

2.Which of the following factors/policies were affecting the price of rice in India in the recent past?

(1) Minimum Support Price

(2) Government’s trading

(3) Government’s stockpiling

(4) Consumer subsidies

Select the correct answer using the code given below:

(a) 1, 2 and 4 only

(b) 1, 3 and 4 only

(c) 2 and 3 only

(d) 1, 2, 3 and 4

3.Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes ?

(1) Working capital for maintenance of farm assets harvesters,

(2) Purchase of combine tractors and mini trucks requirements of farm

(3) Consumption households

(4) Post-harvest expenses

(5) Construction of family house and setting up of village cold storage facility

Select the correct answer using the code given below:

(a) 1, 2 and 5 only

(b) 1, 3 and 4 only

(c) 2,3,4 and 5 only

(d) 1, 2, 3, 4 and 5

4. Consider the following statements :

(1) The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).

(2) The WPI does not capture changes in the prices of services, which CPI does.

(3) The Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

5. In India, which of the following can be considered as public investment in agriculture?

(1) Fixing Minimum Support Price for agricultural produce of all crops

(2) Computerization of Primary Agricultural Credit Societies

(3) Social Capital development

(4) Free electricity supply to farmers

(5) Waiver of agricultural loans by the banking system

(6) Setting up of cold storage facilities by the governments.

In India, which of the following can be considered as public investment in agriculture?

Select the correct answer using the code given below:

(a) 1, 2 and 5 only

(b) 1, 3, 4 and 5 only

(c) 2, 3 and 6 only

(d) 1, 2, 3, 4, 5 and 6

6. With reference to the Indian economy, consider the following statements :

(1) Commercial Paper is a short-term unsecured promissory note.

(2) Certificate of Deposit is a long-term Instrument issued by RBI to a corporation.

(3) ‘Call Money’ is short-term finance used for interbank transactions.

(4) “Zero-Coupon Bonds’ are the interest-bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 4 only

(c) 1 and 3 only

(d) 2, 3 and 4 only

7. With reference to the international trade of India at present, which of the following statements is/are correct?

(1) India’s merchandise exports are less than its merchandise imports.

(2) India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.

(3) India’s exports of services are more than its imports of services.

(4) India suffers from an overall trade/current account deficit.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 4 only

(c) 3 only

(d) 1, 3 and 4 only

8. In the context of the Indian economy, non-financial debt includes which of the following?

(1) Housing loans owed by households

(2) Amounts outstanding on credit cards

(3) Treasury bills

Select the correct answer using the code given below :

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

9. With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?

(1) Quantitative restrictions on imports by foreign investors are prohibited.

(2) They apply to investment measures related to trade in both goods and services.

(3) They are not concerned with the regulation of foreign investment.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

10. If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

(1) Cut and optimize the Statutory Liquidity Ratio

(2) Increase the Marginal Standing Facility Rate

(3) Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

11. With reference to the Indian economy after the 1991 economic liberalization, consider the following statements :

(1) Worker productivity (Rs per worker at 2004-05 prices) increased in urban areas while it decreased in rural areas.

(2) The percentage share of rural areas in the workforce steadily increased.

(3) In rural areas, the growth in the non-farm economy increased.

(4) The growth rate in rural employment decreased.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 and 4 only

(c) 3 only

(d) 1, 2 and 4 only

12. Consider the following statements:

(1) In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.

(2) One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

13. If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

(1) Not depending on short-term foreign borrowings

(2) Opening up to more foreign banks

(3) Maintaining full capital account convertibility

Select the correct answer using the code given below :

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

14. If you withdraw 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be

(a) to reduce it by 1,00,000

(b) to increase it by 1,00,000

(c) to increase it by more than 1,00,000

(d) to leave it unchanged

Solution

(a) poverty rates vary from State to State

(b) price levels vary from State to State

(c) Gross State Product varies from State to State

(d) quality of public distribution varies from State to State

2. The money multiplier in an economy increases with which one of the following?

(a) Increase in the cash reserve ratio

(b) Increase in the banking habit of the population

(c) Increase in the statutory liquidity ratio

(d) Increase in the population of the country

3. Consider the following statements:

The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as data diktat, command the payment system providers that

(1) they shall ensure that entire data relating to payment systems operated by them are stored in a system only in India

(2) they shall ensure that the systems are owned and operated by public sector enterprises

(3) they shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year

Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

4. Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

(a) Curbing imports of non-essential goods and promoting exports

(b) Encouraging Indian borrowers to issue rupee-denominated Masala Bonds

(c) Easing conditions relating to external commercial borrowing

(d) Following an expansionary monetary policy

5. Consider the following statements

(1) Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.

(2) In terms of PPP dollars, India is the sixth-largest economy in the world.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

6. With reference to India’s Five-Year Plans, which of the following statements is/are correct?

(1) From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital good industries.

(2) The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.

(3) In the Fifth Five-Year Plan, for the first time, the financial sector was included as an integral part of the Plan.

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

7. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

(a) Certificate of Deposit

(b) Commercial Paper

(c) Promissory Note

(d) Participatory Note

8. In the context of India, which of the following factors is/are contributors to reducing the risk of a currency crisis?

(1) The foreign currency earnings of India’s IT sector

(2) Increasing the government expenditure

(3) Remittances from Indians abroad

Select the correct answer using the code given below.

(a) 1 only

(b) 1 and 3 only

(c) 2 only

(d) 1, 2 and 3

9. Which of the following is not included in the assets of a commercial bank in India?

(a) Advances

(b) Deposits

(c) Investments

(d). Money at call and short notice

10. Consider the following statements:

(1) Most of India’s external debt is owed by governmental entities.

(2) All of India’s external debt is denominated in US dollars.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

11. The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus (if any) paid to the farmers plus

(a) transportation cost only

(b) interest cost only

(c) procurement incidentals and distribution cost

(d) procurement incidentals and charges for godowns

12. The Chairman of public sector banks are selected by the

(a) Banks Board Bureau

(b) Reserve Bank of India

(c) Union Ministry of Finance

(d) Management of concerned bank

13. What was the purpose of the Inter Creditor Agreement signed by Indian banks and financial institutions recently?

(a) To lessen the Government of India’s perennial burden of fiscal deficit and current account deficit

(b) To support the infrastructure projects of Central and State Governments

(c) To act as independent regulator in case of applications for loans of Rs. 50 crore or more

(d) To aim at faster resolution of stressed assets of Rs. 50 crore or more which are-under consortium lending

Solution

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