IASbaba 60 Day plan: Day 46- Economics and Current Affairs

Q.1) Consider the following about Current Account Deficit.

1. A measurement of a countrys trade in which the value of goods and services
it imports exceeds the value of goods and services it exports.
2. If a current account deficit is financed through borrowing it is said to be more
sustainable and is the globally accepted method.
3. A factor behind the Asian crisis of 1997 was that countries had run up large current
account deficits by attracting capital flows (hot money) to finance the deficit.
4. A current account deficit, may imply that you are relying on consumer spending, and are
becoming uncompetitive.
Select the correct answer
a) 1 and 2 only
b) 2 and 3 only
c) 1, 3 and 4 only
d) All of the above
Q.1) Solution (c)
If a current account deficit is financed through borrowing it is said to be more unsustainable.
This is because borrowing is unsustainable in the long term and countries will be burdened with
high interest payments. E.g Russia was unable to pay its foreign debt back in 1998. Other
developing countries have experience similar repayment problems Brazil, African countries (3rd
World debt) Countries with large interest payments have little left over to spend on
investment.
Q.2) consider the following about J-curve.
1. A theory stating that a country's trade deficit will worsen initially after the depreciation
of its currency because higher prices on foreign imports will be greater than the reduced
volume of imports.
2. In private equity funds , the J-curve effect occurs when funds experience negative
returns for the first several years.
Select the correct answer:
a) 1 only
b) 2 only
c) Both 1 and 2
d) None of the above
Q.2) Solution (c)
Both the statements are correct. It is true for equity funds too.
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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

An example of the J-curve effect is seen in economics when a country's trade balance initially
worsens following a devaluation or depreciation of its currency. The higher exchange rate will
at first correspond to more costly imports and less valuable exports, leading to a bigger initial
deficit or a smaller surplus. Due to the competitive, relatively low-priced exports, however, a
country's exports will start to increase. Local consumers will also purchase less of the more
expensive imports and focus on local goods. The trade balance eventually improves to better
levels compared to before devaluation.
Q.3) The balance of payments (BOP) is the method countries use to monitor all international
monetary transactions at a specific period of time. Consider the following.
1. All trades conducted by both the private and public sectors are accounted for in the BOP
in order to determine how much money is going in and out of a country.
2. If a country has received money, this is known as a debit, and if a country has paid or
given money, the transaction is counted as a credit.
3. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities
(debits) should balance, but in practice this is rarely the case.
Select the correct answer
a) 1 and 2 only
b) 1 and 3 only
c) 2 and 3only
d) All of the above
Q.3) Solution (b)
We all understand what is credit and debit. Just a reading mistake can cause an error here. So
beware!!!
Q.4) Which of following is not under current account of balance of payments (BOP)?
a) Goods
b) Services
c) Loans
d) Transfers
Q.4) Solution (c)
Goods, Services, Income and Transfers are in Current account and Investment, Loan and
Banking Capital are in Capital Account.
Q.5) Consider the following.
a) India experiences a deficit in income part of current account in BOP.
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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

b) India experiences a surplus in services part of current account in BOP.
c) India experiences a deficit in transfers part of current account in BOP.
d) All the above are correct
Q.5) Solution (c)
Transfers is nothing but remittances and India has the highest remittances in the world
followed by China. Hence Surplus
Q.6) Which of the following will lead to reduction of CAD?
1. Decrease in crude oil consumption.
2. Increase in import duty of gold.
3. Boost to IT sector in India.
4. Promote FDI
Select the correct answer
a)
b)
c)
d)

1, 2 and 3 only
1, 2 and 4 only
1, 3 and 4 only
All of the above

Q.6) Solution (d)

It is self explanatory. Boost to It sector will increase exports and hence.
Q.7) Consider the following about Arvind Mayaram Committee w.r.t foreign investments.
1. Foreign investment of 10 per cent or more in a listed company will now be treated as
foreign direct investment (FDI).
2. It said an investor may be allowed to invest below 10 per cent and this can be treated
as FDI subject to the condition that the FDI stake is raised to 10 per cent or beyond
within one year from the date of the first purchase.
3. The panel has suggested that foreign investment in an unlisted company, irrespective of
the threshold limit, may be treated as FPI.
4. Any investment by way of equity shares, compulsorily convertible preference
shares/debentures less than 10 per cent should treated as Foreign Portfolio Investment
(FPI).
Select the correct answer
a) 1 and 3 only
b) 1, 2 and 4 only
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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

c) 2, 3 and 4 only
d) 1, 2 and 3 only
Q.7) Solution (b)
It is not outdated if we are thinking so. The recommendations are valid even today.
The panel has suggested that foreign investment in an unlisted company, irrespective of the
threshold limit, may be treated as FDI not FPI.
Further reading:
http://finmin.nic.in/the_ministry/dept_eco_affairs/investment_division/Report%20of%20Dr%2
0Arvind%20Mayaram%20committe%20on%20FDI_FII.pdf
Q.8) Consider the following.
1. RBI and Ministry of Finance monitors the FDI investment.
2. SEBI is the regulator for FPI, FII or RFPI investments.
Select the correct answer:
a) 1 only
b) 2 only
c) Both 1 and 2
d) None of the above
Q.8) Solution (c)
The regulators for both kind of investments are important to note. Both the above are correct.
This is sector specific regulation but inter department cooperation will always be there.
Q.9) Consider the following.
1. If BOP is positive then it might lead to rupee appreciation and hence good for the
exporters.
2. If BOP is negative then it might lead to rupee depreciation and hence the RBI will absorb
the excess rupee in the market.
Select the correct answer:
a) 1 only
b) 2 only
c) Both 1 and 2
d) None of the above
Q.9) Solution (b)

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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

Rupee appreciation is always bad for the exporters. Similarly when BOP is negative it will lead
to rupee depreciation and hence excess rupee in the market. RBI will attempt to absorb to
maintain balance. Hence a is wrong and b is right.
Q.10) Consider the following about nominal and real exchange rate.
1. Nominal exchange rate is the price of one currency in terms of number of units of some
other currency.
2. It is 'nominal' because it measures only the numerical exchange value, and does not say
anything about other aspects such as the purchasing power of that currency.
3. The real exchange rates are nothing but the nominal exchange rates multiplied by the
price indices of the two countries.
4. The real exchange rates are nothing but the nominal exchange rates multiplied by the
price indices of the two countries.
Select the correct answer
a)
b)
c)
d)

1, 2 and 3 only
1, 2 and 4 only
1, 3 and 4 only
All of the above

Q.10) Solution (d)

Pure and simple understanding of the concepts is put in words. This will help better
comprehension if any.
Further reading:
http://articles.economictimes.indiatimes.com/2003-01-27/news/27555718_1_real-exchangereer-nominal-effective-exchange-rate

Q.11) Consider the following statements regarding the Exchange Rate Systems:
1. Under a freely floating exchange rate regime, authorities do not intervene in the market
for foreign exchange and there is minimal need for international reserves.
2. RBI does not intervene in Foreign Exchange market, with the objective of maintaining
the Real Effective Exchange Rate stable.
Which of the above statements are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

Q.11) Solution (a)

The current exchange rate regime, introduced in 1993, the RBI has been, actively intervening in
the FOREX market with the objective of maintaining the Real Effective Exchange Rate (REER)
stable.
Q.12) Consider the following statements:
The price of any currency in international market is decided by the
1. World Bank
2. Demand for goods/services provided by the country concerned
3. Stability of the government of the concerned country
4. Economic potential of the country in question
Which of the statements given above are correct?
a) All of the above
b) 1 and 4
c) 2 and 3
d) 3 and 4
Q.12) Solution (c)
Previous year question from UPSC. Direct question.
Q.13) The value of the SDR is currently based on a basket of four major currencies: the U.S.
dollar, euro, the Japanese yen, and pound sterling. The basket is being expanded to include
which of the following currencies?
a) Indian Rupee
b) Swiss Franc
c) Saudi Riyal
d) Chinese Renminbi
Q.13) Solution (d)
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member
countries official reserves. As of March 2016, 204.1 billion SDRs (equivalent to about $285
billion) had been created and allocated to members. SDRs can be exchanged for freely usable
currencies. The value of the SDR is currently based on a basket of four major currencies: the
U.S. dollar, euro, the Japanese yen, and pound sterling. The basket will be expanded to include
the Chinese renminbi (RMB) as the fifth currency, effective October 1, 2016.
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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

Q.14) If the foreign-currency equivalent of the home currency falls, then

1.
2.
3.
4.

the home currency has devalued.

the home currency has revalued.
the currency must be in a freely fluctuating exchange-rate system.
the currency is less valuable in purchasing power parity.

Which of the above statements are incorrect?

a) 1 only
b) 2 only
c) 3 and 4
d) 2,3 and 4
Q.14) Solution (d)
If the foreign currency equivalent of the home currency falls, then the home currency has
devalued.
The currency may or may not be in freely fluctuating exchange rate system.
Purchasing Power Parity is not directly related with market exchange rate of currencies.
Q.15) Which of the following are the functions of IMF?
1. provide emergency loans to countries facing balance of payments problems.
2. monitor macroeconomic developments continuously in member countries.
3. serve as the world central bank.
4. to provide a line of credit for each member country.
Select the code from following :
a) 1 and 2
b) 2 and 3
c) 1,2 and 4
d) All of the above
Q.15) Solution (c)
IMF does not serve as World Central Bank.

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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

Q.16) An annual Pitra-paksha mela takes place here

a) Bodhgaya
b) Varanasi
c) Puri
d) Gaya
Q.16) Solution (d)
Q.17) The Udayagiri-Khandagiri caves are a part of the heritage of which faith?
a) Hinduism
b) Buddhism
c) Jainism
d) Sati Cult
Q.17) Solution (c)
King: King Kharavela
Utility: Carved out as residential blocks for Jain monks

Q.18) The assigned code name of Indias first nuclear bomb explosion in 1974 is:
a) Operation Blue Star
b) Operation Shakti
c) Smiling Buddha
d) Operation Crossroads
Q.18) Solution (c)
Operation Blue Star:
An Indian military operation which occurred between 3 June and 8 June 1984, ordered by
Prime Minister Indira Gandhi in order to establish control over the Harmandir Sahib
Complex in Amritsar, Punjab, and remove Jarnail Singh Bhindranwale and his armed
followers from the complex buildings.
The operation had two componentsOperation Metal, confined to the Harmandir Sahib
complex, and Operation Shop, which raided the Punjabi countryside to capture any
suspects
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Roots: The Khalistan Movement was a political Sikh nationalist movement that wanted to
create an independent state for Sikh people, inside the current North-Western Republic of
India.
After-effects:
Led to the assassination of Prime Minister Indira Gandhi on 31 October 1984 by two of
her Sikh bodyguards triggering the 1984 anti-Sikh riots
Bombing of Ari India Flight 182 the largest mass murder in Canadian history and the
attack, considered to be a retaliation against India for the Operation Blue Star
Smiling Buddha: The first confirmed nuclear weapons test by a nation outside the five
permanent members of the United Nations Security Council
Operation Shakti: The second nuclear testPokhran-II was the series of five nuclear bomb test
explosions conducted by India at the Indian Army's Pokhran Test Range in May 1998
The Operation Crossroads series in July 1946, was the first post-war test series and one of the
largest military operations in U.S. history.

Q.19) Consider the following statements:

1. He was also known as Bacha Khan.
2. He founded the Khudai Khidmatgar ("Servants of God") movement in 1929.
3. He strongly opposed the All-India Muslim League's demand for the partition of India.
Identify the personality from the following options:
a) Badruddin Tyabji
b) Khan Abdul Gaffar Khan
c) Hakim Ajmal Khan
d) Maulana Abul Kalam Azad
Q.19) Solution (b)
Khan Abdul Gaffar Khan:
He was also nicknamed as the "Frontier Gandhi" in British India
The Khudai Khidmatgar (Red Shirts) was founded on a belief in the power of Gandhi's notion
of Satyagraha, a form of active non-violence as captured in an oath.
He was one of the arrested during protests arising out of the Salt Satyagraha, 1930.
In 1962, Abdul Ghaffar Khan was named an "Amnesty International Prisoner of the Year"
Was awarded the Bharat Ratna, India's highest civilian award, in 1987
In News: Terror attack at Bacha Khan University
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Badruddin Tyabji:
Was the first Indian solicitor
In 1902, he became the first Indian to hold the post of Chief Justice in Mumbai.
Was active in women's emancipation and worked to weaken the zenana system
A moderate Muslim; He along with Pherozshah Mehta, Kashinath Trimbak Telang and
others formed the Bombay Presidency Association in 1885
Hakim Ajmal Khan:
Was an Indian physician specialising in the field of South Asian traditional Unani medicine as
well as a Muslim Nationalist, politician and freedom fighter.
Participated in the Non-co-operation movement (Satyagraha)
Led the Khilafat Movement
Was one of the founders of the Jamia Millia Islamia University
Abul Kalam Azad:
The first Minister of Education in the Indian government
His contribution to establishing the education foundation in India is recognised by
celebrating his birthday as "National Education Day11th Nov" across India credited with
the establishment of the Indian Institutes of Technology and the foundation of the
University Grants Commission
The youngest person to serve as the President of the Indian National Congress (1923)

Q.20) Where did the Counter-Terrorism Conference-2016 take place?

a) New Delhi
b) Jaipur
c) Mumbai
d) Ahmedabad
Q.20) Solution (b)
PIB
Q.21) Consider the following statements with regard to Central Statistics Office (CSO) under
Ministry of Statistics and Programme Implementation:
1) The CSO releases Consumer Price Indices (CPI) for all-India and states/union territories
separately for rural, urban, industrial workers and combined (rural plus urban)
2) CSO also disseminates Energy Statistics, Social and Environment Statistics and prepares
the National Industrial Classification
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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

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
Q.21) Solution (b)
Explanation:
Consumer Price Indices (CPI) for Industrial Workers are released by Labour Bureau,
Government of India.
The Central Statistics Office (CSO), an attached office of the ministry, coordinates the
statistical activities in the country and evolves statistical standards.
Its activities inter-alia, include compilation of National Accounts, Index of Industrial
Production, Consumer Price Indices for Urban/Rural/ Combined, Human Development
Statistics, including Gender Statistics in the states and union territories and disseminates
Energy Statistics, Social and Environment Statistics and prepares the National Industrial
Classification.
Q.22) Which among the following statements is/are correct in regard to the Cash based
Accounting System and Accrual Accounting System?
1) The Indian Government accounts are prepared on a cash based accounting system,
which does not give a realistic account of governments financial position.
2) The present system does not reflect accrued liabilities arising from the gap between
communities and transactions of government on the one hand and payments made.
3) The 12th Finance Commission recommended for the introduction of accrual accounting
in Government, which have been accepted in principle.
Select the correct one/ones, using the code given below:
a) 1 and 2
b) 2 and 3
c) 1 and 3
d) 1, 2 and 3
Q.22) Solution (d)
Explanation:
The Indian Government accounts are prepared on a cash based accounting system. This
system recognizes a transaction when cash is paid or received. However, it does not give a
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realistic account of government's financial position because it lacks an adequate framework

for accounting for assets and liabilities, and depicting consumption of resources.
Moreover, capital expenditure (expenditure on the creation of new assets) under the cash
system is brought to account only in the year in which a purchase or disposal of an asset is
made. This is not an effective way to track assets created out of public money.
The present system does not reflect accrued liabilities arising from the gap between
commitments and transactions of government on the one hand and payments made.
The Twelfth Finance Commission recommended introduction of accrual accounting in
Government. Government has accepted the recommendation in principle and asked
Government Accounting Standards Advisory Board (GASAB) in the office of the Comptroller
and Auditor General of India (CAG) t draw a roadmap for transition from cash to accrual
accounting system and to prepare an operational framework for its implementation.
So far twenty one State Governments have agreed in principle to introduce accrual
accounting.

Q.23) Select the incorrect one/ones about the Most Favoured Nation (MFN) provisions of the
WTO from the given list of statements, using the code given below:
1) In general, MFN means that every time a country lowers a trade barrier or opens up a
market, it has to do so for the same goods or services for all its trading partners
2) The MFN clause functions differently for the developed and developing countries
Select the appropriate code
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
Q.23) Solution (b)
Explanation:
The MFN provisions of the WTO functions the same way for all its trading partners whether
they are developed or developing countries.

Q.24) Consider the following statements in regard to the concept known as Labour force
participation rate in India:

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IASbaba 60 Day plan: Day 46- Economics and Current Affairs

1) The Labour Force Participation Rate (LFPR), obtained by dividing the number of persons
in the labour force by total population, is an important parameter in employment
projections and formulation of employment strategies.
2) The National Sample Survey Organisation (NSSO) defines labour force participation rate
(LFPR) as the number of persons/person days in labour force per thousand
persons/person days.
Select the correct answer using the code given below
a) Only 1
b) Only 2
c) 1 and 2
d) Neither 1 nor 2
Q.24) Solution (c)
Explanation:
Both of the statements are correct about the concept of the labour force participation
ratio (LFPR) in India.
To calculate the LFPR at first the number or persons/person days employed and the number
of persons/person days unemployed are added--addition is multiplied by 1000 and the sum
is divided by the total population.
Q.25) Consider the following statements in regard to agricultural schemes in India:
1) National Food Security Mission (NFSM) to increase the production of rice, wheat and
pulses by 10,8 and 2 million tonnes, respectively by the end of the 12th Plan.
2) The Government of India has approved crop development programme on cotton, jute
and sugarcane for enhancing productivity under National Food Security MissionCommercial Crops (NFSM-CC) from 2014-15.
3) Krishonnati Yojana is a new umbrella scheme and the above two schemes have been
included in Krishonnati scheme.
Which of the statements given above is/are correct?
a) 2 and 3 only
b) 1 and 2 only
c) 1 and 3 only
d) All of the above
Q.25) Solution (a)
Explanation:
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National Food Security Mission (NFSM) to increase the production of rice, wheat, pulses and
coarse cereals by 10,8,4 and 3 million tonnes, respectively by the end of the 12th Plan.

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