Indian Economy Questions and Answers

Answer: B

The Reserve Bank of India is the banker to the banks.

Scheduled banks keep their cash reserves with it, settle their claims on one another through it, and borrow from it as lender of last resort. That last function is what makes a central bank indispensable in a crisis.

Answer: D

It is based on the marginal benefit received.

Under the benefit principle, a taxpayer should pay in proportion to the benefit received from public services. For the outcome to be optimal, the tax paid at the margin must equal the marginal benefit - the Lindahl condition. Ability to pay is the rival principle, not part of this one.

Answer: A

Both are instruments of monetary policy.

The Statutory Liquidity Ratio is a quantitative instrument, prescribing the share of liabilities a bank must hold in liquid assets. Moral suasion is qualitative - the central bank persuading banks to follow its lead without any formal direction. Both are exercised by the RBI.

Answer: A

NABARD is a bank.

The National Bank for Agriculture and Rural Development is an apex development financial institution, established by an Act of Parliament in 1981. It refinances rural lending by co-operatives, regional rural banks and commercial banks rather than lending directly to farmers.

Answer: C

The responsibility passed to NABARD.

NABARD began work in July 1982 and took over the RBI's functions in respect of regional rural banks and co-operatives from 1983, becoming the apex refinancing and supervisory body for rural credit.

Answer: A

The free trade zone is at Kandla.

India's first export processing zone was set up there in 1965, the first in Asia. Units in it enjoy duty-free import of inputs and simplified procedures, and it became a Special Economic Zone in 2000.

Answer: D

It is an ad valorem tax on domestic final consumption, collected at every stage of production and distribution.

Each seller pays tax on his sales and takes credit for the tax on his purchases, so the levy falls only on the value he has added. The cascading of tax upon tax is thereby avoided, and the whole burden rests on final consumption.

Answer: A

CRISIL evaluates the credit standing of a company.

The Credit Rating Information Services of India, set up in 1987, was India's first credit rating agency. It grades debt instruments by the issuer's ability to service them, so that investors can price risk. It does not itself lend.

Answer: D

It is the flow of expenditure devoted to increasing or maintaining the capital stock.

Gross domestic capital formation counts all investment in fixed assets and inventories before any deduction. Subtracting depreciation gives net capital formation - which is what the fourth option describes.

Answer: A

It relates to the education of girls.

The Kasturba Gandhi Balika Vidyalaya scheme, launched in 2004, set up residential upper primary schools for girls from Scheduled Caste, Scheduled Tribe, other backward class and minority families in educationally backward blocks.