Insights Prelims Test Series – 2016: Discussions Test – 11
Hope you enjoyed solving the Eleventh Test of our 2016 Test Series. On this page, please share your doubts to seek clarifications, or to point out any mistakes in the comment box regarding the First Test. We will do our best to address all your doubts.
test
1. Dear Insights for Q37 explanation is needed why b cannot be the answer. If SLR increases money supply in the economy should be decreased as per my understanding. Plz clarify me.
i also have same doubt.
It is addressed in the comment above. Thank you.
same doubt
only when banks lend less, money supply dec. so best ans is option d. while the second best is option b
what immediately happens after SLR inc. is a financial crunch for banks, so lend less.
The actual statement is “Money circulation in the economy becomes weak”, not reduced or increased Money supply. These are very different terms. Money circulation refers to the way money flows between various sectors in the economy. Money supply refers to the total money volume in circulation.
Moreover, even if SLR were to increase, there is no guarantee that money supply would decrease. If all SLR were to be held in government securities, then ultimately the government would be investing the money it received from SLR in financing the budget deficit, in say public infrastructure projects. The money supply is still a part of the economy,
So, you should choose the most appropriate option, i.e. D. Thank you.
thank you
with less money at disposal,bank would lend less,so the money which is not part of the supply now doesnt undergo effective circulation leading to ‘weak money circulation’. doesnt this validate OPTION B
Dear insight, request to clarify following doubts :
Q.No : query
4: how difference in productivity of labour and capital between nations would affect exchange rate ?
8: less consumption goods would lead to demand exceeding supply in short run and cause inflation.2nd statement appears wrong. please clarify.
21: Please clarify the basis for including the same in NFIA. NFIA does not include foreign investments. Foreign investment are capital receipts (and not income) in the form of FDI or FII.
62: A rise in lending interest rate denotes inflation and inflation negatively affects the exchange rate. Assertion appears wrong but reason hold true. None of the option is correct.
63 : Answer mentioned is D but as per explanation and general understanding B appears correct.Please clarify ?
For Q62:
Incase there are higher interest rates, the foreign banks etc would try to lend more money at a higher interest rates and people also would like to save more in that country because of higher returns. Naturally as these transactions should be done in domestic currency,the demand for that currency would increase. This rise would appreciate the domestic curreny.
So, I think A is correct and R explains it.
4. Suppose USA’s labour is more productive than India’s labour. Then with the same wages (going into cost of goods) they will produce better quality of goods or let’s say more goods. Demand for USA’s goods will be more than that of India’s and by the route of trade, the exchange rate would be affected. The exact mechanism has been explained in the Test and NCERT both.
8. Two points should be borne in mind.
a) Not all consumption goods are sacrificed. Usually unproductive consumption goods like luxuries come in the category. Sometimes it is also done to stop inventory pileup which happens when demand for consumption goods is weak.;
b) Inflationary situations mentioned in statement 2 should be seen in the medium term and long-term, and not in the short-term. Why? Investment in capital goods do not refer to the short-term as inventory buildup in the plants can only be replaced with machines in the medium term. And, the impact too is not immediate (short-run). It takes some time to be reflected in the economy. For all purposes, more capital goods investment (ofcourse not too much) is to avoid inflationary situations.
21. Foreign investments are factor income earned by foreign residents in domestic territory. For e.g. a Nokia production plant in India. A foreign resident has deployed factors in India, and earning income out of it. This is why all our national economic activity is counted in terms of GDP which includes the contribution to production by FDI. To calculate actual national product, we find GNP which is nothing but GDP minus NFIA. So, factor income through Foreign investments are a part of NFIA.
62. Rise in interest rates do not always denote high inflation, and high inflation does not always negatively affect the exchange rate. There will be too many conditions attached to the above statement which are difficult to quantify here.
All over the world monetary authorities use interest rates as a stabilizing mechanism of the external sector, including BoP and exchange rates. Even here, there are several conflicting goals like domestic inflation, investments etc, which are managed by the central bank. An rise in interest rates can lead to appreciation of currency.
Since a lot of conditionalities were attached with the statement, a certain combination of options was withheld such as: 1) None of the options is correct OR 2) A is incorrect but R is correct. So, the most appropriate answer should always be chosen. It is a part of the design of the question.
63. B is the correct answer. Display of D as the answer is a technical glitch. Thank you.
Q4 – PPP Theory measures price levels for same goods ( Quality – assumed to be inherently equal)- So labour productivity should not be a factor
Q8 If an economy produces less consumption goods – It could lead to inflation in the short term – Due to supply- Your Explanation seems contradictory
Q21 Your explanation seems incorrect: GNP = GDP + NFIA – Foreign Investments are in the form of capital – They cannot be clubbed with Factor Incomes accruing from a project which includes Foreign Investment . For eg. If British Petroleum acquires 10 % stake in RIL – Then would say that contributes to NFIA- Please revisit this concept- More clarification is needed here. No book or text includes foreign investment in NFIA
q 34 Narrow Broad- M1, M2 Broad- M3 and M4 ; Cant they be classified on volume of circulation ?
Q56 Can you give some background and explanation about Special relief act, 1963
Q60 Shouldnt commercial banks be sources of credit rather creators of credit; Credit creation is done by Central Banks. PLease clarify
4. Labour productivity in many cases forms the basis for international trade. For e.g. if labour in Germany is more productive than that of France, production costs per unit of output will be lesser in Germany than in France.
This difference in costs forms the basis for German exports and French imports of the same commodity affecting their exchange rates. This is the most fundamental economic theory of international trade which is known as Theory of Comparative Advantage. It should have been clear by the logic given in the explanation above.
8 and 21. Please read the explanations again carefully. In Q8, it is not about short-term inflation.
34. No. Volume of circulation is different as there are bank and post-office deposits, but that is not the basis of classification. Liquidity is the clear answer.
60. Please read the basics of money multiplier in 12th Macroeconomics NCERT. The question is about money multiplier. Creating credit by way of printing currency and credit creation by way of money multiplier are very different things. Former is done by RBI, later can be done by any bank which accept deposits and lends money.
Q4. You are right in saying that difference in labour and capital productivity forms the basis of international trade in the first place. Because due to these differences there will arise difference in prices.
And barriers to trade and investment distort market forces at play thereby acting as impediments in realising exchange rate system based on difference in prices in the long term.
But I don’t think that difference in productivity in labour and capital between nations distort prices in any way. Rather they form the basis for external trade mechanism. If there is no such difference then there will not be price difference. Therefore there is no incentive to trade in foreign markets ( by incurring additional costs on transportation).
Regarding question 4, kindly provide the exact source for the statement 2 in the ques. as in ncert page 82 such statement is not quoted anywhere. Though we understood the theory of competitive advantage theory but unable to understand how the exchange rate will not adjust itself in situation of competitive advantage.
Regarding Ques.21, factor income through Foreign investments are a part of NFIA and not Foreign investments itself, is it so?
Yes, the income accrued from the investment is a part of NFIA. It’s because the income is a flow just like the GDP, that keeps adding to the stock of the nation’s wealth.
hi insights… i got my self registered for pre test series on 22 oct. 2015 and as per ur policy ” To students who have subscribed before 15th November, we will start refunding 25% of their fees from 1st of December.” Till date i hv not got ny discount pls luk into the matter.. thnkxx
@insights , in question 4, whatever be the productivity, its the cost that will matter. More productive labour would definitely imply more demand from that country and hence, the ultimate exchange rate would be determined accordingly. So this justifies that argument given the question, NOT INVALIDATE it. Please clarify.
Hello sir,
I have a doubt in your explanation of Q21.
dont you think Foreign Investment is “capital receipt” for the nation for that particular year because while calculating GDP we use to take into account the final cost of goods and services; but FDI is like investment for capital building, so no good is produced —- hence no income for this foreign investment.
Even according to definition in chapter 2 of NCERT which says:-
“Net factor income from abroad = Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy”
It says EARNED… so i think foreign investment is not NFIA but the income earned through it is included in NFIA.
Pls contradict me if i am wrong.
@insightsprelimstestseries:disqus
Thank you.
You are right in saying that income from foreign investment will be part of NFIA.
But it would be wrong to say that it is capital receipt because receipt is used in the context of receivings of the government. So external commercial borrowings would be part of capital receipt.
In balance of trade there are two accounts I.e current and capital account. Foreign investment would go into capital account.
about q no. 21 say a foreign person has invested for factors in india if you are including his investment into nfia also you are including his profits on that investment and that is for each year don’t you think that calculation i.e. yearly nfia income calculation will be distorted.if you take that foreign investment year after year.
Q21. How foreign investment considered under NFIA. Investment is not same as income.
@insights, same doubt. pls clarify.
Please refer to the comment above. Thank you.
Foreign investments are factor income earned by foreign residents in domestic territory. For e.g. a Nokia production plant in India. A foreign resident has deployed factors in India, and earning income out of it. This is why all our national economic activity is counted in terms of GDP which includes the contribution to production by FDI. To calculate actual national product, we find GNP which is nothing but GDP minus NFIA. So, factor income through Foreign investments are a part of NFIA.
GNP is GDP plus NFIA.
Your concluding line ” So, factor income through Foreign investments are a part of NFIA” is apt and that is why we were looking for “Foreign Income ” term in the options while answering the question rather than merely Foreign Investment 🙂 Say, if TATA Group invested 1 billion dollar in America , that in turn generates a regular income of 1 million dollar income then actually 1 million dollar should be counted in NFIA rather than 1 Billion dollar investment. Please correct if I am wrong.
I guess going by Insights logic, even government policies would be included in NFIA.
Hi,
Q21 : Need more insights into this concept
Please refer to the comment below. Thank you.
Hi,
Could you please clarify Q94, second statement “It does not include the spending by the unorganized sector.”
Q: Why higher GDP does not necessarily imply higher welfare for a nation?
1. It may not be uniformly distributed.
2. It does not include the spending by the unorganized sector.
3. It does not capture extent of environmental degradation.
94. Unorganized sector, also called as informal sector, employs less than 10 workers per establishment, and is not as strictly regulated as the formal sector of the economy. For e.g. a village handicrafts unit employing only 4 workers.
More than 90% of India’s labour force is employed in the unorganized and self-employed sector. India’s GDP does include the spending by the unorganized sector.
Again,confusion created by the official Solution!!
Q.21- NFIA- As the names suggests income by the factors of production which surely do not include transfer payments such as Remittances. Same for the Foreign Investment which is not a factor income.
And a big doubt that- what the interest rates mean i.e lending or borrowing? when it is being used everywhere in economy, Also when we say interest rates in ‘liquidity trap’. Q.100- Fully Confused in explanation.
21. Foreign investments are factor income earned by foreign residents in domestic territory. For e.g. a Nokia production plant in India. A foreign resident has deployed factors in India, and earning income out of it. This is why all our national economic activity is counted in terms of GDP which includes the contribution to production by FDI. To calculate actual national product, we find GNP which is nothing but GDP minus NFIA. So, factor income through Foreign investments are a part of NFIA.
Interest rates: There are different types of interest rates. When we loosely use the term interest rates, understand it to be the interest rate fetched by bonds or market instruments. We refer to this only when we talk about liquidity trap.
For the purpose of Keynesian economics, market instruments also include your bank deposits. This means all lending, borrowing rates are subsumed within this one common interest rate that reflects market returns on securities investment.
In the liquidity trap, market interest rates (say bond interest rates) are so low, that those who speculate or invest in bonds will see interest rates rising in future. Why? It is a part of natural investor expectation. So, if everyone expects the interest rates to go up, they do not prefer to hold bonds, and hold all balance as money causing a liquidity trap.
And what if there is Negative interest rates, which is followed by few countries of the World like Japan, Switzerland, Denmark,etc. What this negative interest rate implies? Do they give interest on the Money lended by them or do they charged interest to the depositors? As both will help in more circulation of money and less saving.
However, giving interest on the loans provided by them seem quiet illogical.
Negative interest rate implies that the depositor (or bank’s customer) will now pay (instead of gain) for keeping bank deposits. Depositors pay for the security and convenience they get by storing money in a safe bank vault.
On the other hand, let’s say when a Central bank pays people (give them) interest on the loans they take, it is actually encouraging people to borrow more and more. These techniques are adopted when standard quantitative easing policies fail.
Q.22 Public finance aims at which of the following objectives?
1. Allocating resources
2. Redistributing resources
3. Stabilising national income and employment
In the NCERT, the third aim is to stabilise “inflation” and not “national income” and employment. remembering that i decided that the 3rd point is incorrect.
Stabilization here would mean reducing the exuberant fluctuations. For e.g. if unemployment is at 5%, and certain economic actions bring heavy fluctuations in unemployment levels to lets say 2% and then back to 10%, and then 1%. Then so much of frictional unemployment will be ultimately undesirable for the economy.
Public Finance would aspire to both increase employment and national income and reduce fluctuations. Too much of fluctuation in national income shows a lot of uncertainty in the economy and does not augur well for attracting either domestic or foreign investment.
Also, NCERT mentions both inflation and unemployment. 🙂
sorry sir, but I think my question was not clear. I wanted to ask you if “national income” can be taken as “inflation”. Because, in the NCERT, the third aim mentions the term “inflation”
Sir i have given all test regularly till this date my lowest score was 84 and highest was 136 and avg is between 100 to 125.am i doing well ? My avg attempt is 90qs but problem is that in every attempt incorrect answers aroud 25+ how 2 reduce that ? Pls suggest something i try to answer every qs is this way to go? also how 2 revise ncerts now
Q91.
Please refer to the link below:
https://www.rbi.org.in/currency/Coins.html
It says coins are issued through RBI as per RBI act.
The link you have given says, “The Government of India has the sole right to mint coins. The responsibility for coinage vests with the Government of India in terms of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also the responsibility of the Government of India. ”
Clearly, where is RBI issuing coins???
You have distorted what has been stated on the RBI page. It also says, “The coins are issued FOR CIRCULATION only through the Reserve Bank in terms of the RBI Act” … this means the government cannot release the coins it has minted. It has to enter into the money supply THROUGH RBI. That’s all.
GOI minting the coins does not mean it is issuing the coins. Further when it says coins are issued through RBI means coins are issued by RBI.
To further my argument follow the link below that says RBI issued coins
https://en.wikipedia.org/wiki/Modern_Indian_coins
Coins are issued by the GoI through RBI. That’s what it means. Don’t give a wikipedia link when our NCERT TEXTBOOK clearly says it is the GoI which issues coins and RBI, for currency notes. And as your very own RBI link says, “The Government of India has the sole right to mint coins. The responsibility for coinage vests with the Government of India in terms of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also the responsibility of the Government of India.”
Ur confrontation is baseless and I shall not waste my time on you. And yes I can post any link I like..u have issues then not my problem.
LOL.
“GOI minting the coins does not mean it is issuing the coins.”
O…………K
The language of the Q91 should have been clearer. Government of India issues the coins, i.e. mints them and its seal is present in the coins. RBI only circulates them. The word “issue” in the RBI link should be read in this context. In 12th NCERT,also the word “issue” has been used in the sense of minting and authorizing coins, and not circulation.
RBI prints currency notes and thus the notes bears the RBI’s seal and Governor’s signature (promise). So, here RBI both issues the currency notes and circulates them in the economy. Thank you.
Also, please go through this https://www.rbi.org.in/scripts/FS_Overview.aspx?fn=2753
thanks insight…
Sir, regarding clarification of 91st question
GOI has the sole right to mint the coins in India but they are issued and circulated only by RBI through RBI act.
question was asked regarding issuing the coins in India! so isnt it RBI who issues coins? The given answer in the key was GOI!
I have raised the same query.
@ins@insightsprelimstestseries:disqus: please clarify the issue.
The language of the Q91 should have been clearer. Government of India issues the coins, i.e. mints them and its seal is present in the coins. RBI only circulates them. The word “issue” in the RBI link should be read in this context. In 12th NCERT,also the word “issue” has been used in the sense of minting and authorizing coins, and not circulation.
RBI prints currency notes and thus the notes bears RBI’s seal and Governor’s signature (promise). So, here RBI both issues the currency notes and circulates them in the economy. Thank you.
Interestingly Wikipedia lists printing currency as a power under monetary as well as fiscal policy. Confused. Q23 has clearly stated it as a part of fiscal policy. Should we take that as finality?
RBI does have a role in printing currency since the liquidity in the market depends on the total currency in circulation. Moreover, the FRBM Act debars the government from financing the fiscal deficit by printing currency. This hints that printing currency can be a part of monetary policy. But, nowhere the RBI mentions it to be so.
Moreover, the decision to print currency is taken by consensus between both RBI and the Government based on a pre-agreed mechanism. Therefore, it is clear that printing currency is not an exclusive part of monetary policy.
Printing currency is also linked to the expenditure part of things, which directly affect the purchasing power of masses. So, please consider it a part of fiscal policy in case of India.
We are sure UPSC would not ask a question on this due to the conflicting definitions.
Thanks a lot for clearing the doubt 🙂
Hi
Q 84 : What does statement 1 mean?
Dear Insights for Q57 explanation is needed plz clarify how Offical gifts and grants by foreign nations come under current account of India
It is because official gifts and grants are not a debt (or loan) on the nation, and thus not form part of the capital account. So, they come under the current account.
I think u missed the concept.please refer
http://www.gktoday.in/blog/components-of-balance-of-payments/
Dear insights plz consider Q63 you have given option D as answer but answer should be B, which you have also supported in the explanation part of the question. Plz clarify.
Yes. It will be B. It is a technical glitch. Thank you.
Q 13 : In the eq. C+S+T (with their respective meanings ) , how can we say that when S increases C will decrease ? As we have more disposable income with us , won’t our consumption increase ?
Income = C+S+T, which is then equated to other identities like C+I+G. Throughout the comparison, for convenience it is assumed that income is constant.
Consumption will ideally increase if income increases.
Exactly , but in the answer , i think its the other its the other way out .
….”Also, in equation (i), total income = C+S+T. When S increases C will decrease also controlling inflationary trends in the economy. “….
Where am i going wrong ?
You haven’t assumed income to be constant. If your income is constant, and you start saving more out of your salary, your consumption would definitely decrease.
Increased present savings will generate more investment and income in future. Even after an increase in income, if you keep consumption constant or reduce it, savings increases. It again finances investment and the cycle goes on. 🙂
Dear insights, I have a question and I am a bit confused about that. Plz give me some advice and help me out..
Did
we also need to study Old NCERT of ancient India by RS Sharma and old
medieval history ncert after studying Tamil Nadu History book and new
ncert books? Or can I leave them?
“Saving discourages inflation causing consumption expenditure.” Please clarify what this statement means? What I can’t make out is whether: “savings discourages inflation and causes consumption expenditure” OR saving discourages “inflation causing consumption expenditure”
Insights , I am not able to download the 11th test PDF from my test series account. Please help.
dear @@insightsprelimstestseries:disqus Q.21 regarding NFIA and GNP. what are the components of NFIA? i referred this website http://www.economicsdiscussion.net/income/net-factor-income-from-abroad-components-and-significance/515 but still not clear how foreign investment can be part of NFIA. GNP = GDP + NFIA but you have replied to some of the comments below that GNP = GDP – NFIA
really confused. please clarify
GNP = GDP + NFIA. It was a mix-up and corrected now. What is more important to understand here is that total domestic production is adjusted for income accrued by foreign factors to find out the gross national income.
The same link explains in point (ii) and (iii) how foreign investment by way of property, entrepreneurship can be a part of NFIA.
thanx. another doubt Q.26 plan expenditure is sub classified into revenue expenditure and capital expenditure. so options A and B are correct, right?
B will be a more appropriate option. Revenue expenditure can be used for purposes other than asset creation. 🙂
@insightsprelimstestseries:disqus
Dear insights,
i am a bit disappointed with the level of test 11 as there were more of questions without multiple statements which made it very easy to answer as compared to the level of actual exam. So, its just a kind request from my side to you to include more statement based questions so that we are well prepared to answer tougher questions.Hope u’ll consider this. Thanks.
hey, how much did u score?
around 138.
Hey. Feel free to use the ‘feedback’ page which is available in your own Insights account to give suggestions/feedback. Hope you’ll consider this. Thanks.
Dear insights, I have a question and I am a bit confused about that. Plz give me some advice and help me out..
Did we also need to study Old NCERT of ancient India by RS Sharma and old medieval history ncert after studying Tamil Nadu History book and new ncert books? Or can I leave them?
You can leave them. 🙂
@@insightsprelimstestseries:disqus Q.29 bond is a capital market ( secondary market instrument). https://en.wikipedia.org/wiki/Secondary_market . therefore, i think correct answer should be option B.
i am extremely sorry to come up with so many doubts. i don’t know anybody else to clear my doubts. i am completely relying on insights. my day starts and ends with insights.
There is a difference between investment (especially long term) and speculation. Speculation exploits immediate fluctuations in bond interest rates, whereas investment is based on the actual long-term yield of the bond.
A bond might be perfect for long-term investment, but not good to speculate upon. The opposite will also be true. Thank you.
hey, i have doubt in question number 62. Actually fporegn capital is attracted by lot of factors and mere rise in interest rate won’t amount to attracing the foreign capital. So, statement 2 should be incorrect. question11: these ulatabhansa hints at “difficulty of capuring the naure of ultimate reality”, and they were not used to describe nature of ultimate reality, there is a major difference. Q63: wrong answer is given. q-99: lichens can be found in polluted areas, though they are injured and there number reduces over time
11. Kabir did not use ulatbansi to show the difficulty of capturing the nature of ultimate reality. He simply described his mystical experiences of the reality he perceived. Only when his statements are seen in a completely logical context do we understand the difficult of capturing the nature of ultimate reality. The option and answer is correct.
62. There are many other factors including non-economic ones. But, in economics, Interest rate is considered a very important factor in attracting foreign capital. Please read the explanation again.
63. It is technical glitch. The answer is option A. Thank you.
@insights hi sir, the questions were sensible as usual…..thanks for that.
sir i am usually ending up with avg marks and not able to get accelerated though trying to cover the portion and sometimes with more negatives, getting me back in score. Sir i request u to plz provide some inputs to how better to prepare still more and how to overcome the issue of negatives, need your support.
Thank you.
If there are 3 books to prepare, prepare one book first. Thoroughly. Then go through the 2014 questions (Insights Tests – the RELEVANT questions from the RELEVANT tests please!) …Next. Prepare the second book/subject for the test. Once again go through the relevant tests from 2014. Now, revise the first book/subject. Then, revise the second book/subject. If you still find time, prepare for the third book, and so on.
The idea is to be as ‘perfect’ as you possibly can, with what you have studied. If you have studied only one book, but revised it once at least, that means you can score almost full marks in questions based on that one book. This will be so much better than trying to read everything without revising and making a mess of what you learnt.
Remember, almost always, the prelims pass marks have been around 60%. So in a way (my understanding, and this is NOT any official survey-based figure/conclusion) you need to be well-prepared with 60% of the portions. Of course, we should try to prepare 100% always. But 60% is like the lower limit for the well-prepared part.
Don’t feel bad. These tests are only the stepping stones. Learn from each test. Try harder for the next. Your main test is on August 7th, 2016 and all these tests should not demotivate you : )
Happy studying!
And in all of this, you should know which book to prioritise.
Example, for this test – the 11th test – if you have taken history/sociology as your optional, you anyway would have had to study the NCERT history/sociology book thoroughly. BUT. If you have some other optional, then out of the GIVEN books, your priority should have been Macroeconomics. Because this is common to ALL students, in pre and mains. Whereas Medieval India is not present in main examination (apart from art and culture of course) but maybe one or two or even three could appear in prelims. And sociology is not as relevant to pre (but yes it is relevant for mains) as is Macroeconomics.
So. Prioritise.
Thanks a lot Frnd I will try my level best t gear up??.
Detailed solution
Hi… i had read the same comment which u posted elsewhere. Since i had only 3 days for the test, i ll tell u what i did. Read the history one thrice, sociology twice ( dont even know why) and just glanced through the economics.
I am really bad in economics. Have no idea, so i didnt want to read it again. Imagine my horror when more than 50% of paper is eco. Then i thought what the hell, i will attempt everything. Marked all the 100. Ha ha ha
12th Macroeconomics is the best book for understanding the basics of Indian Economy. You must read it, and understand it. After all, you want to give the Civil Services Exam. The basics are necessary.
There is only one chapter in this book in which much is not required/relevant for us (that chapter where explanations for ex-post, ex-ante something something is there) .. this chapter needs to be read, but not all of it (according to me)..
I was terrible at Economics. Absolutely terrible. Now, I’m comfortable with basic stuff because of this textbook.
It will take time as well. The first time I had read Macroeconomics, I took 6 days.
Dear Insights,
Q.45 Statement 2: They did not produce any written compositions
I thought this was a trick. I knew they composed, but I also remembered that the alavars and nayanars orally composed and these compositions were compiled after their death. So.. Answer = option 1 and 2 only?
“New textual sources available from this period include compositions attributed to poet-saints, most of whom expressed themselves orally in regional languages used by ordinary people. These compositions, which were often set to music, were compiled by disciples or devotees, generally after the death of the poet-saint.” Introduction Page (140), ‘Bhakti and Sufi Traditions’..
My problem is that I made similar mistakes (2 i think?) in prelims 2015. One I very clearly remember – I remembered in the exam hall that western disturbances were a result of the jet streams. I thought the term ‘westerlies’ was reserved for the trade winds, and to describe the western disturbances, the specific term had to be ‘jet stream’ (from 11th NCERT if I’m right). So I marked the answer wrong. Most likely (will know in a few months) this turned out to be a very costly mistake. Any, I mean, ANY suggestions on what I/we can do to tackle such ‘tricky’ statements? I thought this was pure bad luck. Or just my …. dumbness? 😛
Thank you!
See? The same happened with Question 37. I was absolutely confused between B and D, I simply marked B (I presumed ‘weak ‘= ‘reduced’)…Now if i have to pay so much attention to each term/word …. pre 2015 westerlies only I can remember : (
After giving more and more tests, you would become habitual of paying close attention to such statements.
While reading NCERTs, read them like an examiner, not as a student. You will be able to see the scope of framing such tricky statements.
If you read carefully and write all tests with the same sincerity, these issues will surely be taken care of. Thank you. 🙂
Qs.4-Justification about statement 2 is not given
Qn no. 4 How does statement 2 become correct? do the differences in productivity of labour and capital between nations have a say according to PPP theory?
Qn 23.) Can we say for certain that printing currency is not at all a part of monetary policy ?
Qn 37) On increasing SLR, we can say that total supply of money reduces and hence weakens , right? So is it accurate on saying that statement B is wrong?
Qn 63 should be B, the explanation is correct though!
Thank you _/_ : )
Can I ask question.
I read in your site somewhere that insight will start CSAT practice papers from February. Is that still in pipeline.
And also, when will 2015 paper will be available for practice.
Thanks in advance.
Public finance aims at which of the following objectives? Stabilising national income and employment is given as a correct option. Why should public finance want to stabilise NI and employment? Wont it aspire to increase their rate ?
Stabilization here would mean reducing the exuberant fluctuations. For e.g. if unemployment is at 5%, and certain economic actions bring heavy fluctuations in unemployment levels to lets say 2% and then back to 10%, and then 1%. Then so much of frictional unemployment will be ultimately undesirable for the economy.
Public Finance would aspire to both increase employment and national income and reduce fluctuations. Too much of fluctuation in national income shows a lot of uncertainty in the economy and does not augur well for attracting either domestic or foreign investment.
During a situation of low demand, what role monetary policy can play? Query:- The distinguishing characteristic between QE and monetizing debt is that with the former, the central bank creates money to stimulate the economy, not to finance government spending. Also, the central bank has the stated intention of reversing the QE when the economy has recovered (by selling the government bonds and other financial assets back into the market). Please clarify…
http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/02/obtaining_the_right_to_print_m.html
Printing currency does affect money supply, but in the present economic arrangement, monetary policy decisions are those decisions which are considered to be taken entirely by the Central Bank. For e.g. changing the interest rates, CRR etc.
Printing currency should not be seen ideally as a part of monetary policy as the decision to print currency is not taken solely by the Central Bank. There is a lot of involvement of the government in not just influencing certain decisions, but also approving them in some cases. Actual practice may differ a little as it also depends on the market conditions.
Printing money is also associated with quantitative easing and thus called to be a part of monetary policy. But. in the Indian context, we advice you not to consider it so. Even the RBI does not mention printing currency as one of the instruments of monetary policy. 🙂
Also, please go through this once https://www.rbi.org.in/scripts/FS_Overview.aspx?fn=2753
Thank you.
Qn no. 4 How does statement 2 become correct? do the differences in productivity of labour and capital between nations have a say according to PPP theory?
Qn 23.) Can we say for certain that printing currency is not at all a part of monetary policy ?
Qn 37) On increasing SLR, we can say that total supply of money reduces and hence weakens , right? So is it accurate on saying that statement B is wrong?
Qn 63 should be B, the explanation is correct though!
Please reply
4. PPP Theory does not explain international trade itself, but explains the equalization of exchange rates over a period of time if all trade barriers are removed. The theory explaining the cause of international trade was give by Ricardo, known as the Theory of Comparative Advantage.
It is labour productivity that decides what goods or services a nation will produce. For e.g. if India’s labour in laggard in processing petrochemicals, it will not do it, instead import from lets say USA. SO, USA becomes the exporting nation, and India the importing nation in this One commodity model. Extend this to several commodities and you would clearly see how labour productivity is one of the most important factors behind international trade and thus movement of exchange rates.
23. Please read the reply above to Shreya.
37. The actual statement is “Money circulation in the economy becomes weak”, not reduced or increased Money supply. These are very different terms. Money circulation refers to the way money flows between various sectors in the economy. Money supply refers to the total money volume in circulation.
Moreover, even if SLR were to increase, there is no guarantee that money supply would decrease. If all SLR were to be held in government securities, then ultimately the government would be investing the money it received from SLR in financing the budget deficit, in say public infrastructure projects. The money supply is still a part of the economy,
So, you should choose the most appropriate option, i.e. D.
63. Yes, it is B, Printing of D was a technical glitch. Thank you.
when will u start providing montly compilation of secure 2016.. will u provide or that was false promise
Dear Insights,
Please clarify Q23 .
Monetary policy is defined as regulating the money supply of a nation directly or indirectly using the interest rates. Both printing currency and increasing money supply using other instruments is a part of monetary policy.
The explanation given in the answer refers to fiscal domination of monetary policy.
https://www.rbi.org.in/scripts/PublicationsView.aspx?id=14939
“iii) curbing the monetisation of debt by enacting the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 that prevented the Reserve Bank from subscribing to primary issuances of government securities from April 1, 2006. These landmark steps have considerably reduced the fiscal dominance of monetary policy.”
Printing currency does affect money supply, but in the present economic arrangement, monetary policy decisions are those decisions which are considered to be taken entirely by the Central Bank. For e.g. changing the interest rates, CRR etc.
Printing currency should not be seen ideally as a part of monetary policy as the decision to print currency is not taken solely by the Central Bank. There is a lot of involvement of the government in not just influencing certain decisions, but also approving them in some cases. Actual practice may differ a little as it also depends on the market conditions.
Printing money is also associated with quantitative easing and thus called to be a part of monetary policy. But. in the Indian context, we advice you not to consider it so. Even the RBI does not mention printing currency as one of the instruments of monetary policy. 🙂
Also, please go through this once https://www.rbi.org.in/scripts…
Thank you.
@insightsprelimstestseries:disqus
One quick question : Can commercial bank keep some foreign reserves with themselves or is it solely managed by the central bank ?
They do keep foreign reserves, but not with the same objective as that of the Central Bank.
For e.g. Foreign Currency Non-Resident (FCNR) accounts can be maintained in foreign currencies for NRIs in Indian Banks.
But, these are definitely not used for sterilization or currency management as the Forex reserves are used for by the RBI.
Thnakyou So much insights !
Hi Sir,
Just one clarification
Q21. I understood ‘Net factor Income’ as part of Current account. As we have factor income, non factor income there too. What is wrong in this?
Thanks..:)
RR, please elaborate your question a little further. We are not able to understand the exact query. Thank you.
In Macroeconomics book, Factor income is explained on Page 77 (para 4) as well as on Page 24 (para 2). Are they same?………Sorry for the confusion. Please let me know if the question is clear now.
Dear insight please clarify the meaning of Collateral in context with government securities??
A collateral is needed as an assurance of loan repayment. If the borrower fails to rapy, the collateral can be seized by the bank and sold later in the market to clear off the loan.
When a bank feels that the borrower is beyond failure, in this case government, all it needs it a guarantee from the GoI that it will repay the amount at a certain interest rate on a certain date. This is what we call government securities.
Government securities are themselves used as collateral to borrow funds. This is because a government cannot fail in financially repaying a loan. It is considered the safest borrower. It can always either print currency or raise money from domestic sources or abroad.
Thanks a loads… Insights…
@insightsprelimstestseries:disqus in 37) On increasing SLR, we can say that total supply of money reduces and hence weakens .., hence isn’t option B more appropriate
The actual statement is “Money circulation in the economy becomes weak”, not reduced or increased Money supply. These are very different terms. Money circulation refers to the way money flows between various sectors in the economy. Money supply refers to the total money volume in circulation.
Moreover, even if SLR were to increase, there is no guarantee that money supply would decrease. If all SLR were to be held in government securities, then ultimately the government would be investing the money it received from SLR in financing the budget deficit, in say public infrastructure projects. The money supply is still a part of the economy,
So, you should choose the most appropriate option, i.e. D. Thank you.
Thanks Insights for clarifying the differnece
Hello Sir,
Along with GS prelims tests, when will you provide CSAT prelims test
32 Consider the following statements.
1. Debtors suffer due to low inflation.
i understood 2 and 3 but not one. please clarify.
Suppose you borrowed Rs. 1,000 from a bank at an interest rate of 10% per annum with inflation in the economy being at 9%. So, the effective interest rate that you pay here is only 1% i.e. 10 minus 9. As the value of money declines over a period of time, due to 9% inflation, you don’t find it hard to repay your loan.
Now suppose if inflation is only 2%, the effective interest rate that you pay is 8%, which is quite large. The value of money does not decline over time and yet you should be paying the bank at 8%.
Inflation being high, effective interest rate rise, which is why debtors suffer due to low inflation. 🙂
thanks insight. It took sometime to understand, but finally i understood it 🙂
plz explain it
3.Bond Holders suffer due to sudden spike of interest rates.
Lets see..
Today
You got a 100 RS bond which will pay 12% at the end. So You will get 112 RS at end.
Tomorrow New interest rate is 20 %
and then the same 100 would have got you : 120.
Since your money is locked already, u lost this opportunity to earn extra. So you are at loss.
Let me know, If you need more info.
what i got from ur explanation is that
i make a profit of Rs 8 (120-112) after spike of interest rate
🙁
Let’s try again.
You only had 100 rs, which you already spent. when the rate was 12%.
If only u could have bought that bond on next day.. you could have made 120.
so you made 112 instead of 120. so you lost 8.
Let me know, if you still have doubts
Question 50 on Lala Lajpat Rai
In collaboration with Mahatma Hans Raj,he founded the DAV School at Lahore, 1886. (taken from PIB). isn’t this makes him a co-founder as they were two
got thrrough this.
http://currentaffairs.gktoday.in/150th-birth-anniversary-lala-lajpat-rai-01201630022.html
Jo Jaz topper of most of tests if you are here or insights if u can contact her please ask her to share how she is doing extraordinarily well in tests marks in the range of 190+ it seems she reads the mind of examiner?
I have given test series 11 today for the first time and I was not able to complete syllabus and current events.I have not read current events of that week and 1 subject(social change in development in India) out 3 subjects.I got 81.33 marks this test 11.Is it good marks?
I am unable to download PDF of 11th test . every time I tried it failed.
Pls help.
Hello Insights, just attempted test 11. I have a doubt on q26..Plan expenditure fall under revenue expenditure (which includes both plan and non plan expenditure)…Please clearify?? doubts in explanation
clarify q 26
any one hep me with cds 2012 answer key…..
baith cds1 and cds 2
dear insight,
you gave clarification for question 32,1 option.But i have some doubts in this explanation please clarify it.
1.if inflation is at 2%,effective interest rate will be 8%,so 8% interest rate still lower than what the general bank interest rate,so debtor should not considered as suffer,and,how effective interest rate rises,when inflation being high(we should not take banks actions(increasing or decreasing interest rates)into consideration).please clarify it sir.
“Suppose you borrowed Rs. 1,000 from a bank at an interest rate of 10% per annum with inflation in the economy being at 9%. So, the effective interest rate that you pay here is only 1% i.e. 10 minus 9. As the value of money declines over a period of time, due to 9% inflation, you don’t find it hard to repay your loan.
Now suppose if inflation is only 2%, the effective interest rate that you pay is 8%, which is quite large. The value of money does not decline over time and yet you should be paying the bank at 8%.
Inflation being high, effective interest rate rises, which is why debtors suffer due to low inflation”
dear insight,Q.NO:97,2 option doubt.
question asks about revenue receipts,so all borrowings from abroad shall not considered as revenue receipts,only GRANTS are revenue receipts,external borrowings are capital receipts.please clarify it.
question doesnt talk about revenue or capital..
it just asks financing.. which can be either revenue or capital..
otherwise u are correct.
lalaji was never inc president!!!!!!q50
http://currentaffairs.gktoday.in/150th-birth-anniversary-lala-lajpat-rai-01201630022.html
QUESTION NO 22; TEST 11. In the third option, it has written about stabilising the national income and employment. Should it not be enhancing or increasing the income and employment. suppose the unemployment rate is at 10% , will the govt, by its public spending will stabilise it at 10% or try to reduce thereby increasing employment. same goes for income. please clarify.
Mock Test 11 Q 13
Why do policymakers stress on high savings rate in the Indian economy?
1.Investments are financed by savings.
2.Saving discourages inflation causing consumption expenditure
Which of the above is/are correct?
A.1 only
B.2 only
C.Both 1 and 2
D.None
Answer given : C
Doubt: Statement 2 should be false, How does saving causes consumption expenditure. Savings results in investment expenditure.
Please let me know if I’m wrong!
u need to read it like this..
Saving discourages, inflation causing consumption expenditure
hope it helps
Ya got it! Same thing was said by Insights too!! Thanks a ton!
Question 67) Why should IMF reforms need US Congress approval(as given in the explanation) ?
IMF website says “Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership” .
read the explanation again plus read this hindu article.
http://www.thehindu.com/business/india-gets-more-voting-rights-in-imf-reforms/article8163827.ece
Question : 37
SLR when reduced >> banks will lend less to retail customer.
even option B seems to be correct : money circulation in economy will be weak.. >> bcz more funds are locked for circulation..