Static Quiz 21 February 2023
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Static Quiz 21 February 2023 for UPSC Prelims
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- Question 1 of 5
1. Question
Real Interest Rate is Nominal Interest rate adjusted for
CorrectSolution: b)
Justification: The real interest rate is the nominal interest rate – inflation rate. For example, if base rates is 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1%. A higher real interest rate is good for savers and bad for borrowers. Note, even if nominal interest rates were high e.g. 11%, savers would see a decline in their real value of money if inflation was 12%. This is why the real interest rate is important. Real interest rates can be negative if inflation is higher than nominal interest rates.IncorrectSolution: b)
Justification: The real interest rate is the nominal interest rate – inflation rate. For example, if base rates is 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1%. A higher real interest rate is good for savers and bad for borrowers. Note, even if nominal interest rates were high e.g. 11%, savers would see a decline in their real value of money if inflation was 12%. This is why the real interest rate is important. Real interest rates can be negative if inflation is higher than nominal interest rates. - Question 2 of 5
2. Question
With reference to Public Financial Management System (PFMS), consider the following statements.
1) Government has decided to universalise the use of PFMS to cover all transactions and payments under the Central Sector Schemes.
2) PFMS can provide real time information on financial resource flows and actual utilization in government schemes.
3) It is being administered by National Payments Corporation of India (NPCI).
Select the correct answer using the codes below.CorrectSolution: a)
Justification: Statement 1 and 2: It is an end-to-end solution for processing payments, tracking, monitoring, accounting, reconciliation and reporting. It provides the scheme managers a unified platform for tracking releases and monitoring their last mile utilization. Mandatory use of Public Finance Management System (PFMS) will help monitor the flow of funds to beneficiaries of different government welfare schemes. The actual status of utilization of funds by the multiple implementing agencies of the Central and the State Governments can be known.
Statement 3: The Department of Expenditure is administering the PFMS.
It has tremendous potential to improve programme/financial management, reduce the float in the financial systems by enabling ‘just in time’ releases and also the Government borrowings with direct impact on interest costs to the Government.IncorrectSolution: a)
Justification: Statement 1 and 2: It is an end-to-end solution for processing payments, tracking, monitoring, accounting, reconciliation and reporting. It provides the scheme managers a unified platform for tracking releases and monitoring their last mile utilization. Mandatory use of Public Finance Management System (PFMS) will help monitor the flow of funds to beneficiaries of different government welfare schemes. The actual status of utilization of funds by the multiple implementing agencies of the Central and the State Governments can be known.
Statement 3: The Department of Expenditure is administering the PFMS.
It has tremendous potential to improve programme/financial management, reduce the float in the financial systems by enabling ‘just in time’ releases and also the Government borrowings with direct impact on interest costs to the Government. - Question 3 of 5
3. Question
Consider the following statements regarding the profile of the agriculture sector in India:
1. The share of the agriculture & allied sectors in the total GVA of the economy has consistently been higher than
20 percent.
2. Private investment accounts for majority of share in Gross Capital Formation (GCF) in agriculture and allied sectors.
3. More than 80% of rural households in India are engaged in agriculture.
Which of the statements given above is/are correct?CorrectAnswer: B
A trend in the percentage share of agriculture and allied sectors to the total GVA of the economy at current
prices for the last ten years is presented below. The share of the sector in total GVA of the economy has
a long-term trend of around 18 per cent. The share of the agriculture & allied sector in total GVA,
however, improved to 20.2 per cent in the year 2020-21 and 18.8 per cent in 2021-22. Hence statement 1
is not correct.57.8% of rural households are engaged in agriculture (Situation Assessment Survey of
Agricultural Households, NSO). Hence statement 3 is not correct.IncorrectAnswer: B
A trend in the percentage share of agriculture and allied sectors to the total GVA of the economy at current
prices for the last ten years is presented below. The share of the sector in total GVA of the economy has
a long-term trend of around 18 per cent. The share of the agriculture & allied sector in total GVA,
however, improved to 20.2 per cent in the year 2020-21 and 18.8 per cent in 2021-22. Hence statement 1
is not correct.57.8% of rural households are engaged in agriculture (Situation Assessment Survey of
Agricultural Households, NSO). Hence statement 3 is not correct. - Question 4 of 5
4. Question
India’s public sector capital expenditure is likely to fall to an eight-year low. In this context, consider the following statements:
1. Capital expenditure as a percentage of GDP by the centre declined sharply during the last year.
2. Capital spending by central public sector enterprises (CPSEs) increased for the third consecutive year.
Which of the statements given above is/are correct?CorrectAnswer: D
The Centre’s capex had spiked to 2.3% of GDP last year, far higher than pre-pandemic levels of 1.5-1.9%
and has risen by another 52% in the first half of this year to touch ₹3.2 lakh crore or 2.5% of GDP. Hence
statement 1 is not correct.The sharp surge in the Centre’s capex over the past 18 months or so does not imply higher public sector
capex. This is mainly because of a drop in investments by central public sector enterprises (CPSEs).
While the Centre’s capex is budgeted to rise in 2022-23, it is likely to contract for the third consecutive
year for CPSEs. Hence statement 2 is not correct.IncorrectAnswer: D
The Centre’s capex had spiked to 2.3% of GDP last year, far higher than pre-pandemic levels of 1.5-1.9%
and has risen by another 52% in the first half of this year to touch ₹3.2 lakh crore or 2.5% of GDP. Hence
statement 1 is not correct.The sharp surge in the Centre’s capex over the past 18 months or so does not imply higher public sector
capex. This is mainly because of a drop in investments by central public sector enterprises (CPSEs).
While the Centre’s capex is budgeted to rise in 2022-23, it is likely to contract for the third consecutive
year for CPSEs. Hence statement 2 is not correct. - Question 5 of 5
5. Question
Consider the following statements with respect to Inflationary Gap:
1. It is the gap between GDP growth rates of two consecutive years.
2. In this condition, the potential GDP must be higher than the current real GDP.
3. Reduction in government spending could help reducing this gap.
Which of the statements given above is/are correct?CorrectAnswer: B
An inflationary gap is a macroeconomic concept that measures the difference between the current
level of real gross domestic product (GDP) and the GDP that would exist if an economy was
operating at full employment. Hence, statement 1 is not correct.For the gap to be considered inflationary, the current real GDP must be higher than the
potential GDP. Hence, statement 2 is not correct.IncorrectAnswer: B
An inflationary gap is a macroeconomic concept that measures the difference between the current
level of real gross domestic product (GDP) and the GDP that would exist if an economy was
operating at full employment. Hence, statement 1 is not correct.For the gap to be considered inflationary, the current real GDP must be higher than the
potential GDP. Hence, statement 2 is not correct.
