Q1. Consider the following statements regarding the Current Account of the Balance of Payments:
- It records the trade of goods and services, income receipts, and unilateral transfers.
- A deficit in the current account indicates that the country’s imports exceed its exports.
- Current account deficit is always financed through government borrowing only.
Which of the statements are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) All three
Answer: (a) 1 and 2 only
Explanation:
- Statement 1 → Correct, the current account includes trade in goods/services, income, and remittances.
- Statement 2 → Correct, a current account deficit arises when imports > exports.
- Statement 3 → Incorrect, financing can come from foreign investment, FDI/FPI, or reserves, not only government borrowing.
Q2. Which of the following are functions of the Reserve Bank of India (RBI)?
- Issuing currency notes.
- Acting as a banker to the government.
- Maintaining monetary stability and credit control.
- Fixing direct tax rates for the country.
(a) 1, 2 and 3 only
(b) 1, 3 and 4 only
(c) 2, 3 and 4 only
(d) All four
Answer: (a) 1, 2 and 3 only
Explanation:
- RBI is the central bank responsible for currency issuance, government banker, and monetary policy.
- Statement 4 → Incorrect, direct taxes are set by the government via the Finance Ministry, not RBI.
Q3. Consider the following statements regarding the Fiscal Responsibility and Budget Management (FRBM) Act:
- It aims to reduce fiscal deficit and ensure macroeconomic stability.
- It mandates that the central government maintain a revenue deficit at zero.
- It requires annual review and report to Parliament on compliance.
Which of the statements are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) All three
Answer: (b) 1 and 3 only
Explanation:
- Statement 1 → Correct, FRBM’s main objective is fiscal discipline.
- Statement 2 → Incorrect, it sets targets for revenue deficit reduction, but not strictly zero.
- Statement 3 → Correct, annual compliance report is required.
Q4. Which of the following are included in broad money (M3) of India?
- Currency with the public
- Demand deposits of banks
- Time deposits of banks
- Treasury bills of the government
(a) 1, 2 and 3 only
(b) 1, 2 and 4 only
(c) 2, 3 and 4 only
(d) All four
Answer: (a) 1, 2 and 3 only
Explanation:
- M3 = Currency with public + demand deposits + time deposits.
- Treasury bills are not part of M3, they are part of government debt instruments.
Q5. Consider the following statements regarding Public-Private Partnership (PPP) in India:
- PPP projects aim to combine public oversight with private sector efficiency.
- Private parties in PPP bear all financial risks while government bears none.
- PPP is encouraged in sectors like highways, urban infrastructure, and healthcare.
Which of the statements are correct?
(a) 1 and 3 only
(b) 2 and 3 only
(c) 1 and 2 only
(d) All three
Answer: (a) 1 and 3 only
Explanation:
- Statement 1 → Correct, PPP leverages private efficiency under public regulation.
- Statement 2 → Incorrect, risk is shared between government and private partner.
- Statement 3 → Correct, PPP is common in infrastructure and social sectors.
