Fiscal Policy – Budget – Indian Economy, Previous Year Questions(UPSC CSE)(2011-24)

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1. Consider the following statements:

Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.

Statement-II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I

(c) Statement-I is correct, but Statement-II is incorrect

(d) Statement-I is incorrect, but Statement-II is correct

2. Consider the following statements:

Statement-I: Recently, Venezuela has achieved a rapid recovery from its economic crisis and succeeded in preventing its people from fleeing/emigrating to other countries.

Statement-II: Venezuela has the world’s largest oil reserves

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I

(c) Statement-I is correct, but Statement-II is incorrect

(d) Statement-I is incorrect, but Statement-II is correct

3. With reference to the expenditure made by an organization 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

4. 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 project

5. Which one of the following statements appropriately describes the “fiscal stimulus”? 

(a) It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth

(b) It is an intense affirmative action of the Government to boost economic activity in the country

(c) It is Government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation

(d) It is an extreme affirmative action by the Government to pursue its policy of financial, inclusion

6. Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)? 

  1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.
  2. The Government no longer intends to retain the management control of the CPSEs.

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

7. 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

8. Consider the following statements:

  1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
  2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
  3. As per the Constitution of India, it is mandatory for a State to take the Central Government\\\’s consent for raising any loan if the former owes any outstanding liabilities to the latter.

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

9. With reference to ‘National Investment and Infrastructure Fund’, which of the following statements is/are correct?

  1. It is an organ of NITI Aayog.
  2. It has a corpus of Rs. 4, 00,000 crore at present.

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 \\\’Financial Stability and Development Council\\\’, consider the following statements: 

  1. It is an organ of NITI Aayog.
  2. It is headed by the Union Finance Minister
  3. It monitors macro-prudential supervision of the economy.

Which of the statements given above is/ are correct?

(a) 1 and 2 only

(b) 3 only

(c) 2 and 3 only

(d) 1, 2 and 3

11. Which of the following is/are included in the capital budget of the Government of India? 

  1. Expenditure on acquisition of assets like roads, buildings, machinery, etc,
  2. Loans received from foreign governments
  3. Loans and advances granted to the States and Union Territories

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

12. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?

  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Reducing import duty

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2, 3 and 4

13. There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit? 

  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Expanding industries

Select the correct answer using the code given below:

(a) 1 and 3 only

(b) 2 and 3 only

(c) 1 only

(d) 1, 2, 3 and 4

14. With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure? 

  1. Defence expenditure
  2. Interest payments
  3. Salaries and pensions
  4. Subsidies

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1, 2, 3 and 4

(d) None

15. In India, deficit financing is used for raising resources for

(a) Economic development

(b) Redemption of public debt

(c) Adjusting the balance of payments

(d) Reducing the foreign debt

——————————————————————————————————–

Key with Explanation:

1. Consider the following statements:

Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.

Statement-II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I

(c) Statement-I is correct, but Statement-II is incorrect

(d) Statement-I is incorrect, but Statement-II is correct

Explanation:

2. Consider the following statements:

Statement-I: Recently, Venezuela has achieved a rapid recovery from its economic crisis and succeeded in preventing its people from fleeing/emigrating to other countries.

Statement-II: Venezuela has the world’s largest oil reserves

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I

(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I

(c) Statement-I is correct, but Statement-II is incorrect

(d) Statement-I is incorrect, but Statement-II is correct

Explanation:

3. With reference to the expenditure made by an organization 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

Explanation:

4. 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 project

Explanation:

5. Which one of the following statements appropriately describes the “fiscal stimulus”? 

(a) It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth

(b) It is an intense affirmative action of the Government to boost economic activity in the country

(c) It is Government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation

(d) It is an extreme affirmative action by the Government to pursue its policy of financial, inclusion

Explanation:

6. Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)? 

  1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.
  2. The Government no longer intends to retain the management control of the CPSEs.

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

Explanation:

7. 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

Explanation:

8. Consider the following statements:

  1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
  2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
  3. As per the Constitution of India, it is mandatory for a State to take the Central Government\\\’s consent for raising any loan if the former owes any outstanding liabilities to the latter.

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

Explanation:

9. With reference to ‘National Investment and Infrastructure Fund’, which of the following statements is/are correct?

  1. It is an organ of NITI Aayog.
  2. It has a corpus of Rs. 4, 00,000 crore at present.

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

Explanation:

10. With reference to \\\’Financial Stability and Development Council\\\’, consider the following statements: 

  1. It is an organ of NITI Aayog.
  2. It is headed by the Union Finance Minister
  3. It monitors macro-prudential supervision of the economy.

Which of the statements given above is/ are correct?

(a) 1 and 2 only

(b) 3 only

(c) 2 and 3 only

(d) 1, 2 and 3

Explanation:

11. Which of the following is/are included in the capital budget of the Government of India? 

  1. Expenditure on acquisition of assets like roads, buildings, machinery, etc,
  2. Loans received from foreign governments
  3. Loans and advances granted to the States and Union Territories

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Explanation:

12. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?

  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Reducing import duty

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2, 3 and 4

Explanation:

13. There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit? 

  1. Reducing revenue expenditure
  2. Introducing new welfare schemes
  3. Rationalizing subsidies
  4. Expanding industries

Select the correct answer using the code given below:

(a) 1 and 3 only

(b) 2 and 3 only

(c) 1 only

(d) 1, 2, 3 and 4

Explanation:

14. With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure? 

  1. Defence expenditure
  2. Interest payments
  3. Salaries and pensions
  4. Subsidies

Select the correct answer using the code given below.

(a) 1 only

(b) 2 and 3 only

(c) 1, 2, 3 and 4

(d) None

Explanation:

15. In India, deficit financing is used for raising resources for

(a) Economic development

(b) Redemption of public debt

(c) Adjusting the balance of payments

(d) Reducing the foreign debt

Explanation:

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