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SOLUTIONS: Insights Revision Test for Prelims 2018- DAY – 5


INSIGHTS REVISION TEST for Preliminary Exam 2018: Test – 5

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Henceforth, we will be posting solutions separately after each Revision test. Those who are not comfortable with quiz, can give test and read solutions here.

1) With reference to the Paika Rebellion of Odisha, consider the following statements:


  1. It pre-dates the 1857 Sepoy Mutiny
  2. It was a tribal uprising with tribal related grievances
  3. This rebellion was against both the Gajapati kings and the British

Which of the above statements is/are correct?

  1. 1 Ony
  2. 1 and 2 Only
  3. 2 Only
  4. 1 and 3 Only


Solution: a)

(Though tribals were involved, it was not a tribal grievances related rebellion)


Insights Current Affairs, June 2017 (


Pre-dating what has been popularly regarded as the fist war of independence in 1857, the Paika Bidroha (Paika Rebellion) of 1817 in Odisha briefly shook the foundations of British rule in the eastern part of India. Paikas were essentially the peasant militias of the Gajapati rulers of Odisha who rendered military service to the king during times of war while taking up cultivation during times of peace. They unfurled the banner of rebellion against the British under the leadership of Baxi Jagandhu Bidyadhara as early as 1817 to throw off the British yoke.


Rulers of Khurda were traditionally the custodians of Jagannath Temple and ruled as the deputy of lord Jagannath on earth. They symbolised the political and cultural freedom of the people of Odisha. The British, having established their sway over Bengal Province and Madras Province to the north and south of Odisha, occupied it in 1803.The Gajapati King of Odisha Mukunda Deva-ll was a minor then and initial resistance by Jai Rajguru, the custodian of Mukunda Deva-II, was put down brutally and Jai Rajguru was torn apart alive. A few years later, it was the Paikas under Baxi Jagabandhu, the hereditary chief of the militia army of the Gajapati King, who rose in rebellion, taking support of tribals and other sections of society. The rebellion started in March 1817 and spread quickly. Though Paikas played a larger role in the rebellion against the British, it was by no means a rebellion by a small group of people belonging to a particular class. The tribals of Ghumusar (part of present day Ganjam and Kandhmal Districts) and other sections of the population actively took part in it. In fact, the Paika Bidroha got the opportune moment to spread when 4OOtribals of Ghumsar entered Khurda protesting against the British rule. The Paikas attacked British symbols of power, setting ablaze police stations, administrative offices and the treasury during their march towards Khurda, from where the British fled. The Paikas were supported by the rajas of Kanika, Kujang, Nayagarh and Ghumusar and zamindars, village heads and ordinary peasants. The rebellion quickly spread to Purl, Pipli Cuttack and other parts of the province. The British were initially taken aback and then tried to regain lost ground but faced stiff resistance from the rebelling Paikas. Many a battle ensued with some victories to the rebels, but the British finally managed to defeat them within three months.


Widespread suppression followed with many killed and imprisoned. Many more were tortured. Some rebels fought a guerilla war till 1819 but were captured and killed. Baxi Jagabandhu was finally arrested in 1825 and died in captivity in 1829. Though the Paika Bidroha enjoys a cult status in Odisha with children growing up with stories of the brave fight against the British, it has unfortunately received less attention at the national level than it should have got.While the reasons can be many for such scant attention to such a significant event of the history in India, it is heartening that the Government of India has decided to give the event its due recognition by commemorating its 200 anniversary in a befitting manner.


2) With reference to the innovate in India (i3) program, consider the following statements:


  1. It seeks to accelerate and promote entrepreneurship and indigenous manufacturing in the electronics sector in India
  2. It is an initiative by the Department of Information Technology

Which of the above statements is/are correct?

  1. 1 Only
  2. 2 Only
  3. Both 1 and 2
  4. Neither 1 nor 2


Solution: d)

In a bid to create a globally competitive biopharmaceutical industry that addresses the country’s major concerns around barriers to affordable healthcare, innovate in India (i3) program has been launched.

What you need to know about innovate in India (i3)?

It is a 250 million USD program of the Department of Biotechnology (DBT) and Ministry of Science & Technology in collaboration with World Bank. It will be implemented by Biotechnology Industry Research Assistance Council (BIRAC), a Public Sector Enterprise, set up by DBT.

It is a first- of-its-kind mission that brings together industry and academia to promote entrepreneurship and indigenous manufacturing in the biopharmaceutical sector.


3) EternalBlue, a piece of software, a chunk of data, or a sequence of commands that takes advantage of a bug or vulnerability which was used as part of the worldwide WannaCry ransomware attack, was developed by


  1. The U.S. National Security Agency (NSA)
  2. The KBG (Russia)
  3. Shadow Brokers hacker group
  4. None of the above


Solution: a)


EternalBlue, sometimes stylized as ETERNALBLUE,[1] is an exploit developed by the U.S. National Security Agency (NSA) according to testimony by former NSA employees.[2] It was leaked by the Shadow Brokers hacker group on April 14, 2017, and was used as part of the worldwide WannaCry ransomware attack on May 12, 2017. The exploit was also used to help carry out the 2017 NotPetya cyberattack on June 27, 2017[7] and reported to be used as part of the Retefe banking trojan since at least September 5, 2017.


4) As per provisions of Andaman and Nicobar Island (Protection of Aboriginal Tribes) Regulation, 1956 (PAT), which of the following is/are NOT recognised as  “aboriginal tribes”?


  1. Onges
  2. Angamis
  3. Hajong
  4. Shompen
  5. Jarawas
  6. Chakma


Select the correct answer using codes below:

  1. 1, 2, 3 and 6 Only
  2. 2, 3 and 6 Only
  3. 1, 4 and 5 Only
  4. 2 and 6 Only


Solution: b)


Please note that questions asks which is NOT the one. So, option-C is wrong.

As per provisions of Andaman and Nicobar Island (Protection of Aboriginal Tribes) Regulation, 1956 (PAT), the Andamanese, Jarawas, Onges, Sentinelese, Nicobarese and Shom Pens have been identified as “aboriginal tribes”.

Chakma Tribe was in news too (in 2017)

The Union government is considering granting citizenship to over a lakh Chakma and Hajong refugees, who have been living in India for over 50 years. This has brought the spotlight back on the refugees.



5) With reference to Indian Navy’s GSAT-7 Rukmini, consider the following statements:

  1. It is a multi-band communication-cum surveillance satellite
  2. It is India’s first military communication satellite developed by the Indian Space Research Organisation (ISRO)
  3. It is equipped with advance technology to lock-in incoming ballistic missiles and destroy them in skies

Which of the above statements is/are correct?

  1. 3 Only
  2. 1 and 3 Only
  3. 1 and 2 Only
  4. 2 Only


Solution: c)


What is Rukmini?

Weighing nearly 2,650 kg, Rukmini was the first military communication satellite developed by the Indian Space Research Organisation (ISRO) for the Indian Defence forces, with the Indian Navy being the primary user. Built on September 29, 2013, Rukmini is also the last of ISRO’s seven fourth-generation satellites which has at least a 2,000 nautical mile footprint over the IOR. Rukmini was launched early on August 30, 2013 atop an Ariane 5 ECA rocket from Kourou in French Guiana. This gave India a major push in maritime security.

How was it launched?

Rukmini was successfully placed into a geosynchronous orbit, around 36,000 km above Earth, nearly five days prior to its launch after at least three orbit-raising manoeuvres from ISRO’s Master Control Facility in Karnataka’s Hassan. Rukmini’s 2.5-tonne antennae, which included the ultra high frequency Helix antenna, were deployed before it was stabilised on its three-axis in the orbit. The Rs 185-crore Rukmini was launched during a 50-minute launch window which started at 2 am, and it was telecast live by Doordarshan.

What are its capabilities in the Indian Ocean Region?

Launched at the cost of approximately Rs 480 crore, Rukmini is used exclusively by the Indian Navy to secure real-time communications between its numerous warships, aircraft, submarines and land-based communication systems. The GSAT-7 is believed is markedly improve India’s maritime security in a wide section on the western and eastern flanks of the Indian Ocean region, among many others. A case in point was Operational Exercise (Tropex) in the Bay of Bengal in 2014, when Rukmini was successfully able to network around 60 ships and at least 75 aircraft effortlessly. The Indian Navy wants to use Rukmini to primarily cover activities up till the Malacca Straits in the east and the Hormuz Strait to the west. The GSAT-7 also has an approximate 2,000 nautical mile footprint over the IOR.

As per ISRO, Rukmini or GSAT-7 is an advanced communication satellite that will provide a wide range of service spectrum from low bit rate voice to high bit rate data communication. Scientists say its payload is designed to provide communication capabilities to users over a wide oceanic region, which include the Indian land-mass.

What was the cost of Rukmini?

The foreign launch cost of the GSAT-7 was around Rs. 480 crore, with the satellite costing at least Rs 185 crore.

6) In the context of business cycle consider the following statements & mark the correct sequence;

  1. Boom-> Recovery->Recession->Depression.
  2. Boom->Recession->Depression->Recovery.
  3. Depression->Recession->Boom->Recovery.
  4. Recovery->Recession->Boom->Depression.

Solution: B)


Boom: A peak in economic activity where growth is high.

Recession: A fall in economic activity generally a recession is characterized as a fall in output or negative growth rates.

Depression: A sustained fall in output.

Recovery: When an economy gradually begins to recover i.e turn to positive growth rates.

Background: The world witnessed the great depression in 1930 & Global Financial crisis in 2008. Keynesian economics calls for stimulus packages to boost demand. He largely argued for role of government in stimulating demand.


Business cycle —  natural rise and fall of economic growth that occurs over time.  

Why it’s needed?

For analyzing the economy & to make better financial decisions. 

4 Stages

1) Expansion or recovery — between the trough and the peak.

  • economy is growing implying increase in GDP ( measures economic output)
  • Unemployment reaches its natural rate
  • Inflation is low near 2%
  • The stock market is in a bull market
  • A well-managed economy can remain in the expansion phase for years. That’s called a Goldilocks economy.
  • The expansion phase nears its end when the economy overheats leading to creation of asset bubbles.  

2) Peak or boom — A peak in economic activity

3) Contraction Economic growth weakens

  • When it turns negative, economists call it a recession.
  • Mass layoffs leading to rise in unemployment rate
  • Stocks enter a bear marketas investors sell. 

4) Trough or depression — when the economy hits bottom.

7)Inflationary Gap is defined by;

  1. Lack of inflation which is also a source for growth.
  2. Inflation that usually prevails in a developing country
  3. Gap between expected inflation & actual inflation.
  4. Excess of Aggregate demand over Aggregate Supply at the full employment level.

Solution: d)


Aggregate Demand: Aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time.

Aggregate Supply: The total supply of goods and services available to a particular market from producers.

The concept was first introduced by Keynes. If aggregate demand exceeds the aggregate value of output at the full employment level, there will exist an inflationary gap in the economy.

It is thus the result of excess demand.

Therefore If AD>AS at full employment

C= consumption I=investment G=government expenditure X=exports M=imports

Let y, be the aggregate at full employment where A=>AD=AS. At A output will not rise further. Now suppose that there is shift in AD->AD’, i.e AD>AS. Then there will be increase in prices. As A->B can be termed as an “inflationary Gap”. Similarly, we can also have a “deflationary Gap” as a “recessionary Gap”.


Justification :

At the full employment level everyone will be having the source of income and thus the purchasing power. Hence the demand for the goods and services increases.

Whereas the capacity of the economy to produce the goods and services will be at the same level.

This leads to inflation i.e, the increase in the price of goods and services because of demand.

8)Consider the following statements regarding ‘capital depreciation’:

  1. Depreciation does not take into account unexpected or sudden destruction or disuse of capital as can happen with accidents, natural calamities or other such extraneous circumstances.
  2. It is based on a simple method that there is constant rate of depreciation based on the original value of an asset.

 Which of the above statement/s is/are correct.

a) Only 1

b) Only 2

c) 1 and 2

d) None of the above.

Solution c)

The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation.

          Depreciation assumes that there is given life term for any capital good and also is an allowance for its gradual replacement over time. Sudden or unexpected events are not counted under depreciation. This calls for designing insurance policies such as fire insurance, flood protection etc.

Natural Calamities are unexpected & their intensity cannot be always known to accommodate them into making allowance as calculation of GDP.

Recently, environmental degradation is being calculated in the form of green GDP or GDP adjusted for degradation of the natural environment using shadow prices for destruction of trees & carbon trading.

9) The following passage relates to ,”It is not from the benevolence of the butcher, the brewer, of the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantage”.

  1. Division of labour
  2. Labour theory of value
  3. Free market economy
  4. Specialisation

            Solution: c)

                    Adam Smith gave these lines as an advocate of a free market economy guided by the theory of “Invisible Hand”. A butcher does not supply meat based on good hearted intentions, but because he profits from selling meat. If the meat he sells is poor, he will not have repeat customers and thus, no profits. Therefore, it is in butcher’s interest to sell good meat at a price that customers are willing to pay, so that both parties benefit in every transaction.

This is straight from NCERT.

10) In terms of circular flow of National Income, Which of the following can be treated as leakages;

  1. Dividend paid by companies.
  2. Taxes paid to government.
  3. Imports from abroad.
  4. Savings

 Use the codes below & select your answer;

a) 1 and 2

b) 2 and 3

c) 1,2 and 3

d) 2,3 and 4

Solution: d)

Injections (+):                                                                                  Leakages (-)

  • Export (X)                                                                                 Taxes(T)
  • Investment (I)                                                                           Imports(M)
  • Government spending (G)                                                           Savings(S)             


Factors of Production Factor Payment
Land Rent
Labor  Wages
Capital Interest
Entrepreneurship Profits/dividends


Therefore dividends are a mechanism to transfer share of profits to households & are neither leakage nor injection in the circular flow of income.


What is the circular flow?

It shows flows of goods and services and factors of production between firms and households

The circular flow shows how national income or Gross Domestic Product is calculated

Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production (land, labour, capital and enterprise) – for example wages and salaries going to people in work.


Leakages (withdrawals) from the circular flow

Here some part of household income will be:

  • Put aside for future spending, i.e. savings (S) in banks accounts and other types of deposit
  • Paid to the government in taxation (T) e.g. income tax and national insurance
  • Spent on foreign-made goods and services, i.e. imports (M) which flow into the economy

It reduces  the circular flow of income leading to a multiplied contraction of production (output)


Injections into the circular flow

additions to investment, government spending or exports so boosting the circular flow of income leading to a multiplied expansion of output.

  • Capital spending by firms, i.e. investment expenditure (I) e.g. on new technology
  • The government, i.e. government expenditure (G) e.g. on the NHS or defence
  • Overseas consumers buying Indian goods and service, i.e. Indian export expenditure (X)


An economy is in equilibrium when the rate of injections = the rate of withdrawals from the circular flow.

11) Consider the following statements;

  1. Expenditure method is used to measure contribution of GDP in the construction sector.
  2. National disposable income gives an idea of what is the maximum amount of goods and services the domestic economy has at its disposal.

Which of the above statement/s is/are correct?

a) Only 1

b) Only 2

c) 1 and 2

d) None of the above.

Solution: c)

Source: Page 25, Class XII Macroeconomics

              Box: National Disposable Income and Private Income.

There are 3 methods to estimate GDP:

  1. Income method.
  2. Expenditure Method.
  • Production Method/ Value added method.

Expenditure Method:

  1. a) Household/ Private final consumption expenditure + b) Government final consumption expenditure+ c) investment=GDPMP

Expenditure method is used in construction because of vast inputs (organized or unorganized)etc. All three methods are used by cso (central statistical organization) to estimate GDP in India.


Net Disposable Income Is the Income which is at the disposal of the nation as a whole for spending or disposal

 National disposable income = National income + Net indirect taxes + Net current transfers from rest of the world simply put


Three methods of calculating GDP

  • Production (output) approach — counting the production by sector of activity
  • Income approach — It involves compiling data from employment and earnings surveys to estimate salaries and wages by industrial activity. However, there are sectors of activity for which it is not easy to measure compensation. Therefore, many countries such as Canada, the United States, Japan or Australia use the income approach through trend extrapolation to estimate GDP.
  • Expenditure approach — considering how much do households, government, non-profit institutions, and financial institutions consume within a country and adding net exports of that country. It not only facilitates the compilation of GDP, but it can also offer insights on the economic policies of a country

GDP = C + I + G + (X- M)

C = Private consumption expenditure

I = Investment Expenditure

G= Government Consumption Expenditure

X = Value of Exports

M = Value of Imports

The expenditure approach


12) Consider the following statement;

  1. The ratio of nominal to real GDP is well Known index of prices called CPI.
  2. GDP deflator is also defined in percentage terms

  Which of the above statements is/are correct:

  1. Only 1
  2. Only 2
  3. Both 1 and 2
  4. None of the above

Solution: B

The ratio of Nominal GDP to real GDP is called GDP deflator

=>GDP/ gdp where  GDP=Nominal GDP

                                    gdp=Real gdp.

Like GDP deflator we have GNP deflator as well

(Nominal= real + Inflation)

If real gdp is 100 and nominal gdp is 150 then gdp deflator would be 150/100 or 1.5

(Reference: Page 26, Class XII Macroeconomics)


Nominal GDP (GDP measured at current prices) — market value of goods and services produced in an economy, unadjusted for inflation

Real GDP(GDP measured at constant prices) — nominal GDP, adjusted for inflation to reflect changes in real output

As a result, nominal GDP will often appear higher than real GDP.

Gross Domestic Product (GDP) deflator — measure of general price inflation

GDP Deflator             =          Nominal GDP  x 100
                                                 Real GDP

Importance of GDP Deflator 
GDP deflator is a much broader and comprehensive measure of inflation than CPI or WPI because

  • It reflects the prices of all domestically produced goods and services in the economy whereas, other measures like CPI and WPI are based on a limited basket of goods and services, thereby not representing the entire economy (the basket of goods is changed to accommodate changes in consumption patterns, but after a considerable period of time).
  • basket of WPI (at present) has no representation of services sector. The GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of imports. Changes in consumption patterns or the introduction of new goods and services or structural transformation are automatically reflected in the deflator which is not the case with other inflation measures. 

However WPI and CPI are available on monthly basis whereas deflator comes with a lag (yearly or quarterly, after quarterly GDP data is released). Hence, monthly change in inflation cannot be tracked using GDP deflator, limiting its usefulness.

Ministry of Statistics and Programme Implementation (MOSPI) comes out with GDP deflator in National Accounts Statistics as price indices. The base of the GDP deflator is revised when base of GDP series is changed.

13) Consider the following statements about bonds and interest rates:

  1. Bond prices & interest rates move in opposite directions
  2. Bond yields & interest rates move in opposite directions
  3. Bond prices do not reflect inflationary trends
  4. Bond prices rarely change as they are privy to indexation.

Solution: a)

Bond yield: Bond yield is the amount of return an investor realizes on a bond.

        Bond prices and interest rates have an inverse relationship so when one goes up, the other goes down.

Bond yield will rise when the value of the bond declines so when bond yields (or interest rates) rise, it actually means that the value of bonds in general is declining. This is why rising bond yields are generally considered to be undesirable for existing bond investors.



The price of a bond changes in response to changes in interest rates in the economy. This is due to the fact that for a fixed-rate bond, the issuer has promised to pay a coupon based on the face value of the bond – so for a Rs.1,000 bond , 10% annual coupon rate, the issuer will pay the bondholder Rs.100 each year.

Say that prevailing interest rates are also 10% at the time that this bond is issued, as determined by the rate on a short-term government bond. An investor would be indifferent investing in the corporate bond or the government bond since both would return Rs.100. Imagine a little while later, however, that the economy has taken a turn for the worse and interest rates drop to 5%. Now, the investor can only receive Rs.50 from the government bond, but would still receive Rs.100 from the corporate bond. This makes the corporate bond much more attractive, and so investors in the market will bid up the price of the bond until it trades at a premium that equalizes the prevailing interest rate environment – in this case the bond will trade at a price of Rs.2,000 so that the Rs.100 coupon represents 5%. Likewise, if interest rates soared to 15%, then an investor could make Rs.150 from the government bond and would not pay Rs.1,000 to earn just Rs.100. This bond would be sold until it reached a price that equalized the yields, in this case to a price of Rs.66.67.

This is why the famous statement that a bond’s price varies inversely with interest rates works

14) Consider the following about liquidity trap & select the correct answer;

  1. It is a situation where a firm does not have sufficient cash flows for its working capital needs.
  2. It is a situation where a bank does not have enough assets to cover for its Non performing assets or bad loans.
  3. It is a situation where monetary policy is no longer effective in macroeconomic policies & the fiscal policy must play an active role.
  4. All the situations given above are correct.

Solution: C)

 Option A: is about burn rate where companies spend too much beyond their working needs.

Option B: iss about need for capital adequacy.

Option C: is about liquidity trap. For eg: Europe & Japan are not able to recover despite negative interest rates & thus need special government programmes.


Liquidity trap refers to a situation in which an increase in the money supply does not result in a fall in the interest rate but merely in an addition to idle balances: the interest elasticity of demand for money becomes infinite.

Under normal conditions an increase in money supply, resulting in excess cash balances, would cause an increase in bond prices, as individuals sought to acquire assets in exchange for money, and a corresponding fall in interest rates.

In situation, described by Keynes as liquidity trap, individuals believe that bond prices are too high and will therefore fall, and correspondingly that interest rates are too low and must rise. They, therefore, believe that to buy bonds would be to incur a capital loss and as a result they hold only money. This means that an increase in the money supply merely increases idle balances and leaves the interest rate unaffected.


15) Match List – I with List – II and select correct answer from the codes given below:

 List – I                                                                                                 List – II

  1. International Monetary Fund                                                       1. Lending to private sector
  2. International Bank for Reconstruction and Development                 2. Balance of Payments problems
  3. International Development Association                                         3. Soft Loan to poor countries
  4. International Finance Corporation                                                4. Socio-economic infrastructure

Codes :

A   B   C   D

  1. a) 2 1   3   4
  2. b) 1 2   4   3
  3. c) 3 4   1   2
  4. d) 2 4   3   1

Solution: d


Please refer internet.

16) consider the following statements:

  1. In the recent years, the wedge between the real and nominal GDP growth has narrowed significantly
  2. The differences in the nominal growth between GVA and GDP have also increased in the last few years

Which of the above statements is/are correct:

  1. Only 1
  2. Only 2
  3. Both 1 and 2
  4. None of the above


GVA is linked as a measurement to gross domestic product (gdp), as both are measures of output. The relationship is defined as:

GVA + taxes on products – subsidies on products = GDP

As the total aggregates of taxes on products and subsidies on products are only available at whole economy level,[3] Gross value added is used for measuring gross regional domestic product and other measures of the output of entities smaller than a whole economy. Restated,

GVA = GDP + subsidies – (direct, sales) taxes

Over-simplistically, GVA is the grand total of all revenues, from final sales and (net) subsidies, which are incomes into businesses. Those incomes are then used to cover expenses (wages & salaries, dividends), savings (profits, depreciation), and (indirect) taxes.

In the recent years, the wedge between the real and nominal GDP growth has narrowed significantly. While real GDP growth averaged 6.4 per cent between 2012-13 and 2014-15, the nominal growth was 12.5 per cent in this period. In comparison, during the three-year period from 2015-16 to 2017-18, the real and nominal GDP average growth is estimated to be 7.2 per cent and 10.1 per cent respectively, pointing to higher differences in the former period than latter. This is not surprising given that the fact that inflation in the earlier period (particularly in 2012-13 and 2013-14) was significantly higher than the latter.

The growth in nominal GDP in 2016-17 is estimated to be 11 per cent and it is expected at 9.5 per cent in 2017-18 on account of both lower real growth as well as lower value of deflator in 2017-18. The growth of nominal GVA in these two years is estimated to the 9.7 per cent and 9.0 per cent respectively. The differences in the nominal growth between GVA and GDP have also increased in the last few years. This is indicative of an increase in the share of net indirect taxes in GDP.

17) Consider the following statements about food expenditure and income:

  1. As the income levels rise, the expenditure on food increases less than proportionately.
  2. This is one of the factors which led to emphasis on heavy industry in the second plan

Which of the above statements is/are correct:

a) Only 1

b) Only 2

c) Both 1 and 2

d) None of the above

Solution : c

As the income level increases the purchasing power of people also increases. As the rise in expenditure on food is low, people can spend the surplus on services, industrial goods. As India didn’t have the industrial base this would have caused the import of the industrial goods and hence higher CAD. Hence second five year plan emphasised on heavy industry.



As income goes up, demand for industrial goods and service sector rises. If we would not have gone for industry we would have imported demand for industrial goods causing problems of current account deficit. This was also followed up with an import substitution policy.

The heavy dependence on imported inputs could not be sustained economically by developing countries. This was compounded, in the 1970s and 1980s, by the oil crisis and the debt crisis. The economic and financial crisis in developing countries led to the proliferation of loan packages from the international financial institutions. Structural adjustment policies were then introduced as a condition for loans borrowed by countries. Since the 1980s, close to 100 countries have been forced to take on structural adjustment packages. The policies included on the one hand forced liberalization, and on the other, the conversion of domestic agricultural production for exports.

18) Consider the following statements with reference to investments in India:

  1. The slow growth in fixed investment in the recent years could partly be ascribed to twin-balance sheet problem.
  2. This trend of declining fixed investment forced government to push up capital spending resulting in higher budget deficits.

Which of the above statements is/are correct:

a) Only 1

b) Only 2

c) Both 1 and 2

d) None of the above

Solution: a

Twin balance sheet originated due to stuck projects, rising npa and exit problems in India. TBS is two two-fold problem for Indian economy which deals with:

1) Overleveraged companies – Debt accumulation on companies is very high and thus they are unable to pay interest payments on loans. Note: 40% of corporate debt is owed by companies who are not earning enough to pay back their interest payments. In technical terms, this means that they have an interest coverage ratio less than 1.

2) Bad-loan-encumbered-banks – Non Performing Assets (NPA) of the banks is 9% for the total banking system of India. It is as high as 12.1% for Public Sector Banks. As companies fail to pay back principal or interest, banks are also in trouble.

What has also happened is that government expenditure by November has been much higher, as a proportion of the budgeted spending. Very likely, this is because of the earlier date of the Union budget, which allowed the ministries to start spending immediately as the fiscal year started, unlike in previous years. Also the deficit was largely due to a shortfall in government revenue on account of GST, demonetization and other structural reforms. Hence it  is not because of capital spending.


19)  Which of the following is correct with respect to Indian Currency:

a) One of the salient features of the external sector developments in the recent years has been the relatively stable rupee dollar exchange rate and much lower level of fluctuations within the year.

b) The currency has had positive effect on trading balance in India

c) Stability in currency has led to higher chance for FDI attractiveness

d) Other countries have also had similar circumstances


The currency effect in India was comparatively worse when compared to other countries. This resulted in less export growth from Ida in comparison to Korea, Taiwan and Indonesia.

Stability in currency was a minor factor in attracting FDI. The major factors was attractiveness of Indian Market and growing maturity of the economy in terms of demand for foreign luxury and mid-segment products.

Other currencies in comparison have depreciated helping them power ahead in their contribution to export shares of various commodities.

20) Consider the following statements about logistics in India:

  1. Logistics is a major factor in promoting competitiveness of exports from India.
  2. India has improved considerably in the logistics index of the World Bank

Which of the above statements is/are correct:

a) Only 1

b) Only 2

c) Both 1 and 2

d) None of the above


Logistics is the general management of how resources are acquired, stored and transported to their final destination

Logistics Performance Index (LPI)

  • released by World Bank every two years based on a world-wide survey of stakeholders
  • six components
    1. quality of trade and transport infrastructure
    2. competence and quality of logistics services
    3. efficiency of customs and border management clearance
    4. ease of arranging competitively priced shipments
    5. ability to track and trace consignments
    6. frequency with which shipments reach consignees within scheduled or expected delivery times.
  • helps countries to identify challenges and opportunities in trade logistics and also to improve their performance.
  • 2016 report — ‘Connecting to Compete 2016: Trade Logistics in the Global Economy’
  • India rank — 35th among 160 countries (54 — 2014)
    1. increased its LPI score to 3.4
  • Top 5 countries in 2016 LPI: Germany (score: 4.23 points), Luxembourg (4.22), Sweden (4.20), Netherlands (4.19) and Singapore (4.14).

21) Consider the following statements about agriculture:

  1. Towards achieving a more diversified cropping pattern, the government is implementing the Crops Diversification Programme in original green revolution states viz. Punjab, Haryana and in Western UP, to diversify paddy area towards less water requiring crops.
  2. The economic Survey also came up with a crop – diversification index in which Karnataka got first rank

Which of the above statements is/are correct:

a) Only 1

b) Only 2

c) Both 1 and 2

d) None of the above


Crop Diversification Programme (CDP), a sub scheme of Rashtriya Krishi Vikas Yojna (RKVY), is being implemented in the Original Green Revolution States of Punjab, Haryana and Western Uttar Pradesh from 2013-14 to diversify area from water guzzling crop like paddy to alternate crops like maize, pulses, oilseeds, cotton & agro-forestry plantation. It has been continued in 2014-15.

Under CDP, assistance is provided to the States for conducting cluster demonstrations on alternate crops, promotion of water saving technologies, distribution of farm machinery, setting up of value addition facilities, awareness through trainings etc.


Index  of  Crop  Diversification

  • has been computed for major States and All India to examine whether there has been major changes in the cropping patterns across States.
  • ranges — 0 to 1 (higher the value, greater the diversification)
  • there  is  a  declining  inter-temporal behaviour  in  crop  diversification  for  the  States like Chhattisgarh, Haryana, Madhya Pradesh, Odisha, Punjab and Uttar Pradesh. Among these  States, the decline in the index has been sharp for Odisha.
  • Two  of  the  States Himachal Pradesh and Jharkhand have shown 
  • increasing  values  in  crop  diversification. 
  • The crop  diversification  scenario  for  India  as  a whole appears to be almost stable throughout the periods


Karnataka has topped the crop diversification index across the country. The southern state has scored 0.938 on the crop diversification index for the year 2014-15, as per the survey.


Crop diversification refers to the addition of new crops or cropping systems to agricultural production on a particular farm taking into account the different returns from value-added crops with complementary marketing opportunities.


Karnataka is followed by Maharashtra, which is a distant second, with the score of 0.903. Gujarat is at the third slot with 0.900 score.

22) Government is in the process of rationalization of the 38 Labour Acts by framing relevant provisions of existing laws into 4 labour codes. Which of the following is NOT one of them:

a) Code on wages

b) Code on social security

c) Code on skill development

d) Code on industrial relations


As part of labour law reforms, the Government has undertaken the exercise of rationalisation of the 38 Labour Acts by framing 4 labour codes viz Code on Wages, Code on Industrial Relations, Code on Social Security and Code on occupational safety, health and working conditions

23)  Consider the following statements:

  1. Pradhan Mantri Fasal Bima Yojana (PMFBY) which is a yield index based crop insurance scheme was launched in 2016.
  2. PMFBY is having premium rate capping to further benefit farmers

Which of the above statements is/are correct:

a) Only 1

b) Only 2

c) 1 and 2

d) None of the above

Solution: a

Like any insurance product, the purpose of index-based insurance (IBI) is to compensate clients in the event of a loss. IBI is used to protect against shared rather than individual risk such as the risks associated with weather fluctuations, disease out breaks or price loss.

The highlights of this scheme are as under:

i)      uniform premium of

          2% —- Kharif crops

          1.5% — Rabi crops

           5% — annual commercial and horticultural crops

The premium rates to be paid by farmers are very low and balance premium will be paid by the Government to provide full insured amount to the farmers against crop loss on account of natural calamities.

ii)          no upper limit on Government subsidy. Even if balance premium is 90%, it will be borne by the Government.

iii)           Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit Government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction.

iv)         The use of technology will be encouraged to a great extent. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments.


Comparison with previous schemes

Sl.No Feature NAIS




PM Crop Insurance Scheme
1 Premium rate Low High Lower than even NAIS (Govt to contribute 5 times that of farmer)
2 One Season – One Premium Yes No Yes
3 Insurance Amount cover Full Capped Full
4 On Account Payment No Yes Yes
5 Localised Risk coverage No Hail storm, Land slide Hail storm, Land slide, Inundation
6 Post Harvest Losses coverage No Coastal areas – for cyclonic rain All India – for cyclonic + unseasonal rain
7 Prevented Sowing coverage No Yes Yes
8 Use of Technology (for quicker settlement of claims) No Intended Mandatory
9 Awareness No No Yes (target to double coverage to 50%)


24). Consider the following statements:

  1. In case of large projects states are allowed to raise money from Official Development Assistance partners such as Japan only with sovereign guarantee.
  2. States are not allowed to borrow money from abroad

Which of the above statements is/are correct:


a) Only 1

b) Only 2

c) 1 and 2

d) None of the above


ODA: Official Development Assistance (ODA) and ODA Loans. ODA is broadly divided into bilateral aid, in which assistance is given directly to developing countries, and multilateral aid, which is provided through international organizations.

Large infrastructure projects being executed by State government entities will find it easier to tap international funds from bilateral financing agencies, with the Cabinet enabling them to directly access funding from such agencies on the basis of a central government guarantee while keeping such loans off States’ books. In general, states can only borrow from domestic sources.

Article 292 of the Indian Constitution states that the Government of India can borrow amounts specified by the Parliament from time to time. Article 293 of the Indian Constitution mandates that the State Governments in India can borrow only from internal sources. Thus the Government of India incurs both external and internal debt, while State Governments incur only internal debt.


25)Antibiotic resistance is making gonorrhea harder and sometimes even impossible to treat, according to a new warning from the World Health Organization (WHO).

With reference to Gonorrhea, consider the following statements:

  1. It is caused by virus
  2. Its symptoms include painful urination and abnormal discharge
  3. If untreated, this disease can cause infertility in both genders

Which of the above statements is/are correct?

a) 2 Only

b) 2 and 3 Only

c) 1 and 2 Only

d) 3 Only

Solution: c)

Antibiotic resistance is making gonorrhea harder and sometimes even impossible to treat, according to a new warning from the World Health Organization (WHO). Therefore, a new drug may be urgently needed to treat the disease.


Nearly 80 million people are infected with the disease every year. Among these, doctors are finding more and more cases of infection untreatable by all known antibiotics.


What you need to know about Gonorrhea?

Gonorrhea, also called “the clap“, is a disease caused by bacteria. Untreated, it can cause painful pelvic inflammation in women, and infertility in both genders. In extreme cases, the bacteria can spread in the blood to cause life-threatening infections in other parts of the body.

Symptoms of infection include painful urination and abnormal discharge, but many will experience no symptoms at all.