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71 BPSC PRELIMS
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TEST - 8 (SOLUTION) English

Economy
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 BPSC TEST-8 (SOLUTION)
Q 1. Ans. C Q 5. Ans. A
Explanation: Explanation:
The Bhandari Committee was constituted to examine The Foreign Exchange Management Act (FEMA),
issues related to the restructuring and strengthening of 1999, was enacted by the Parliament of India to replace
Regional Rural Banks (RRBs). the Foreign Exchange Regulation Act (FERA), 1973,
The Regional Rural Banks (RRBs) were established on not the Direct Taxation Act.
2 October 1975, initially with just five banks, with the FEMA came into force on June 1, 2000, with the aim
objective of extending banking services to the rural of consolidating and amending laws relating to foreign
population, particularly in remote and unbanked areas. exchange.
The ownership structure of RRBs involves a tripartite Its primary objective is to facilitate external trade and
shareholding: payments and to promote the orderly development and
3 Government of India – 50% maintenance of the foreign exchange market in India.
3 Concerned State Government – 15% The Act extends to the entire territory of India and
3 Sponsoring Nationalised Bank – 35% also applies to offices, branches, and agencies outside
In order to address the financial and operational India that are owned or controlled by persons resident
challenges faced by RRBs and to improve their efficiency, in India. Moreover, it covers violations committed
the government constituted two key committees: outside India by any person to whom the Act applies.
3 The Bhandari Committee (1994–95) Q 6. Ans. C
3 The Basu Committee (1995–96)
Explanation:
Q 2. Ans. B
The classification of Plan and Non-Plan expenditure in
Explanation: India was discontinued starting with the Union Budget
The concept of Five-Year Plans in India was for the financial year 2017-18.
inspired by the economic planning model of the Planned expenditures are defined as the expenditure on
Soviet Union. the programmes that are mentioned in our country’s
This approach to centralised and integrated national current five-year plan. For example, electricity, water,
socio-economic planning was first implemented by communication, transportation, agriculture and other
Joseph Stalin in the Soviet Union in 1928, and India activities, social services, etc.
adopted this model from its first five-year plan in The expenditure incurred on programmes other than
1951. those detailed in the current five-year plan of a country
Q 3. Ans. B is known as Non-plan Expenditure.
Now, the accounts are only divided into Capital and
Explanation: Revenue.
The Consumer Price Index for Agricultural Labourers Q 7. Ans. A
(CPI-AL) is compiled and released by the Labour
Bureau, which is an attached office of the Ministry of Explanation:
Labour and Employment. The Fair and Remunerative Price (FRP) of sugarcane
The CPI-AL is used to track changes in the cost of is approved by the Cabinet Committee on Economic
living for agricultural labourers and is a factor in Affairs (CCEA). The CCEA, chaired by the Prime
adjusting minimum wages for agricultural workers Minister, takes the final decision on the FRP after
across different states. considering recommendations from the Commission
Q 4. Ans. C for Agricultural Costs and Prices (CACP) and
consultations with state governments and other
Explanation: stakeholders.
The “Hindu rate of growth” refers to the low economic Q 8. Ans. A
growth rate of about 3–4% per annum experienced
by India in the decades following independence, Explanation:
particularly between the 1950s and 1980s. The Giffen paradox is an economic phenomenon
This term was coined by economist Raj Krishna to where the demand for a good increases as its price rises,
describe the sluggish growth, which averaged around contradicting the law of demand. This happens when a
3.5% per year. good is an inferior good, meaning consumers buy less
of it as their income increases, and the income effect

BPSC TEST-8 ECONOMY (SOLUTION) 1

 of a price increase outweighs the substitution effect, 3 Blue Box: Subsidies linked to production-limiting
causing consumers to buy more of the good despite the programs and are allowed under certain conditions.
higher price. Q 13. Ans. D
Q 9. Ans. A Explanation:
Explanation: Fossil fuel consumption is NOT a key component of a
When a country’s currency depreciates, its goods Green Economy.
become cheaper for foreign buyers, making exports A Green Economy focuses on reducing environmental
more competitive and leading to an increase in export risks and ecological scarcities while promoting
volumes. sustainable development. Key components typically
On the other hand, depreciation makes imports more include renewable energy, resource efficiency, and
expensive, not cheaper, and can contribute to higher sustainable development, as they contribute to low-
inflation rather than decreased inflation. carbon, resource-efficient, and socially inclusive growth.
Currency depreciation does not directly cause higher Fossil fuel consumption, by contrast, is associated with
domestic interest rates; interest rates are influenced by high carbon emissions and environmental degradation,
a range of other monetary policy factors. which are counter to the principles of a Green Economy.
Q 10. Ans. A Q 14. Ans. B
Explanation: Explanation:
The assets represent the financial resources held by Direct Tax refers to the type of tax that is borne by a person/
banks to facilitate their operations and generate profits. entity on whom it is levied. Thus, in this case, the Impact
Commercial bank assets in India primarily include: of Tax and the Incidence of Tax fall on the same person or
3 Cash and reserves, entity.In other words, the burden of a Direct Tax cannot be
3 loans and advances, shifted to another person or entity.
3 Investments in securities, Some prominent examples of Direct Tax include –
3 other financial instruments, and Income Tax, Corporate Tax, Minimum Alternate Tax,
3 physical assets like buildings and equipment. Securities Transaction Tax, Capital gain, gift tax, etc.
The primary liabilities of a commercial bank in India are: Indirect Tax refers to the type of tax for which the Impact
3 Deposits which represent the money held by of Tax and Incidence of Tax fall on different persons
customers in various accounts. These deposits can or entities. They are, generally, imposed on goods and
be broadly classified into demand deposits (such services. Indirect Taxes in India are administered by the
as savings and current accounts) and time deposits Central Board of Indirect Taxes and Customs (CBIC),
(like fixed deposits). which is a part of the Department of Revenue (under
3 Borrowings from other banks, the Reserve Bank of the Ministry of Finance).
India (RBI), and other financial institutions Some prominent examples of Indirect Tax include –
3 Equity share capital. Customs Duty, Excise duty, GST, Service tax, etc.
Q 11. Ans. A Q 15. Ans. B
Explanation: Explanation:
Agricultural marketing refers to the various services The fiscal deficit target set by the Indian government
that link the agricultural produce of a farmer to the for the financial year 2025–26 in the Union Budget
consumer. 2025–26 is 4.4% of GDP.
Key functions include assembling, processing, A fiscal deficit occurs when a government’s total
distribution, and supporting activities like grading, expenditures exceed its total revenue (excluding
packaging, and storage. It does not include Production borrowings) in a fiscal year. It is a key indicator
as a key function. of economic health, reflecting the gap between
Q 12. Ans. A government income and spending.

Explanation: Q 16. Ans. B

These terms are used under the World Trade Explanation:

Organisation (WTO) framework to classify agricultural The first paperless Union Budget of India was
subsidies. presented in the year 2021-22. On 1 February 2021,
3 Green Box: Permitted subsidies with minimal Finance Minister Nirmala Sitharaman delivered
trade-distorting effects. the budget in a completely digital format, using a
3 Amber Box: Subsidies that distort trade and are tablet instead of traditional printed documents. This
subject to reduction commitments. transition was influenced by the COVID-19 pandemic

2 BPSC TEST-8 ECONOMY (SOLUTION)

 and was also aligned with the government’s Digital government. It posits that beyond a certain threshold,
India initiative. higher tax rates may lead to a decline in revenue due
Q 17. Ans. C to reduced incentives for production, investment, and
tax compliance. The curve implies the existence of
Explanation: an optimal tax rate that maximises revenue without
Inflation can be defined as a sustained increase in the negatively impacting economic activity.
general price level of goods and services in an economy Q 22. Ans. C
over a period of time.
3 Increasing the money supply does not control Explanation:
inflation; in fact, it typically causes inflation Sterilisation refers to the actions taken by a central
by increasing aggregate demand without a bank, such as the RBI, to neutralise the impact of foreign
corresponding increase in goods and services. exchange interventions on the domestic money supply.
3 Inflation reduces the purchasing power of money, When the RBI buys or sells foreign currencies in the
not increases it. forex market, it can inadvertently affect the domestic
3 Contractionary monetary policy (such as raising money supply.
interest rates or reducing the money supply) is To counter this, the RBI conducts Open Market
specifically used to control inflation by curbing Operations (OMOs)—buying or selling government
excess demand. securities in the open market—to absorb or inject
3 Raising interest rates by the central bank generally liquidity, thereby ‘sterilising’ the impact of its forex
helps reduce inflation, not increase it, because it interventions on the money supply. This helps maintain
discourages borrowing and spending. monetary stability and control inflation.
Q 18. Ans. D Q 23. Ans. B
Explanation: Explanation:
The Central Statistical Organisation (CSO) is The Rolling Plan was introduced in 1978–79 during
responsible for releasing the Index of Industrial the tenure of the Janata Party government, which
Production (IIP) in India. The CSO, under the Ministry abandoned the Fifth Five-Year Plan mid-course. It
of Statistics and Programme Implementation (MoSPI), proposed a flexible approach with annual plan targets
compiles and publishes the IIP on a monthly basis. The that could be revised each year based on emerging
IIP is an indicator that measures the growth rate of needs and performance.
various industrial sectors in the Indian economy. However, this approach was discontinued when the
Q 19. Ans. C Indian National Congress returned to power in 1980
under Indira Gandhi, who reintroduced a new Sixth
Explanation: Five-Year Plan.
Per capita income” measures the average income Q 24. Ans. A
earned per individual in a specific region or country
over a defined time frame. Explanation:
It is calculated by dividing the total income of the area Dividends and Profits: Earnings from government
by its population, providing an indicator of the standard investments in PSUs, a non-repayable revenue receipt,
of living and economic well-being of the population. boosting fiscal resources.
Q 20. Ans. B Defence Expenditure: Government spending on armed
forces and security, classified as revenue expenditure,
Explanation: not a receipt.
A “closed economy” is an economic system that does Salaries: Payments to government employees, a
not participate in international trade, meaning it recurring revenue expenditure, not a receipt.
neither imports goods and services from other countries Pension Payments: Post-retirement benefits paid to
nor exports its own goods and services abroad. This employees, treated as revenue expenditure.
self-sufficiency implies that all economic activity— Taxes: Compulsory, non-repayable payments like GST
production, consumption, and investment—relies and income tax, classified as revenue receipts.
solely on domestic resources, labour, and markets. Q 25. Ans. B
Q 21. Ans. D Explanation:
Explanation: While Dadabhai Naoroji made the earliest attempt to
The Laffer Curve is an economic theory that analytically estimate India’s national income in 1867–68, it was
depicts the relationship between the rate of taxation and Dr. V.K.R.V. Rao who, for the first time, employed
the corresponding level of tax revenue collected by the scientific and systematic methods to calculate national

BPSC TEST-8 ECONOMY (SOLUTION) 3

 income in 1931–32. His work laid the foundation for generation, and self-reliance in the economy. This
future national income accounting in India. slogan became a central theme of the government’s
Q 26. Ans. A socio-economic policy during that period

Explanation: Q 31. Ans. C

The GDP deflator is an index that measures the level Explanation:

of price changes (inflation or deflation) in an economy The correct chronological sequence of the given Acts is
over a given period. It reflects how much of the change as follows :
in Nominal GDP (which is calculated at current 3 Minimum Wages Act – 1948
prices) is due to changes in the price level, as opposed 3 Industries (Development and Regulation) Act
to changes in the actual volume of goods and services – 1951
produced. 3 Monopolistic and Restrictive Trade Practices –
GDP Deflator = (Nominal GDP / Real GDP) × 100 1969 (MRTP) Act
3 Nominal GDP is the value of all goods and services 3 Foreign Exchange Regulation Act (FERA) – 1973
produced at current market prices. Q 32. Ans. A
3 Real GDP is the value of all goods and services
produced at constant prices (adjusted for inflation). Explanation:
3 A GDP deflator above 100 indicates inflation; Monetary policy refers to the process through which
below 100 indicates deflation. the Central Bank manages the supply of money in the
Q 27. Ans. A economy.
Instrument of Monetary Policy :
Explanation: 3 Quantitative tools: These directly impact the
An NPA is a loan or advance for which the principal money supply and liquidity.
or interest payment remains overdue for a period of 90 ƒ Examples: Bank Rate, Repo Rate, Reverse
days. Repo Rate, Statutory Liquidity Ratio, Marginal
For banks, a loan is an asset because the interest paid Standing Facility, and Open Market Operations.
on these loans is one of the most significant sources of 3 Qualitative Tools: These regulate credit allocation
income for the bank. indirectly.
When customers, retail or corporate, are not able to pay ƒ Moral Suasion, Direct Action, Margin
the interest, the asset becomes ‘non-performing’ for the requirement, Credit rationing.
bank because it is not earning anything for the bank. About the Monetary Policy Committee (MPC)
Therefore, the RBI has defined NPAs as assets that stop 3 Members: MPC consists of six members-three
generating income for banks. Members from the RBI and three appointed by the
Banks are required to make their NPA numbers public Central Government.
and to the RBI as well from time to time. 3 Chairman: The RBI governor is the ex officio
Q 28. Ans. C Chairperson of the committee.
3 Voting: Each MPC member has one vote; in case of
Explanation: a tie, the Governor casts the deciding vote.
The Eight Core Industries in India, crucial for the Indian Q 33. Ans. B
economy, are: Coal, Crude Oil, Natural Gas, Refinery
Products, Fertilisers, Steel, Cement, and Electricity. Explanation:

Q 29. Ans. D Gross Domestic Product (GDP) represents the final

value of goods and services produced within a country’s
Explanation: borders in a specific period, typically a year.
Yellow : Oilseeds There are three methods to calculate GDP:
Silver : Eggs 3 Production Method: Calculates GDP by summing
Grey : Fertilizer the value added at each stage of production.
Golden : Honey 3 Income Method: Calculates GDP by summing
Q 30. Ans. D all incomes earned in the economy (wages, rent,
interest, profit).
Explanation: 3 Expenditure Method: Calculates GDP by adding
The slogan “Garibi Hatao” (Remove Poverty) was up total expenditure on final goods and services.
popularised during the launch of the Fifth Five-Year Q 34. Ans. C
Plan (1974–1979) under the leadership of Prime
Minister Indira Gandhi. Explanation:
The plan focused on poverty alleviation, employment The Special Drawing Right (SDR) is an artificial

4 BPSC TEST-8 ECONOMY (SOLUTION)

 international reserve asset created by the International Q 38. Ans. C
Monetary Fund (IMF). Explanation:
SDRs are not a currency but represent a claim to
currency held by IMF member countries. The service sector attracts the highest FDI equity flow
Their value is based on a basket of major international in India. According to official data for FY 2024–25,
currencies. the services sector received 19% of total FDI equity
SDRs are used to supplement countries’ official inflows, amounting to USD 9.35 billion, up from USD
reserves, providing liquidity and stability to the global 6.64 billion in the previous year, a growth of 40.77%.
financial system. This makes it the top recipient, followed by computer
They help countries address balance of payments crises software and hardware (16%) and trading (8%). The
without resorting to drastic economic measures. services sector includes activities like finance, banking,
Q 35. Ans. C insurance, outsourcing, and business services, which
consistently draw significant foreign investment.
Explanation: India’s total FDI inflow for FY 2024–25 stood at USD
Under the PM KISAN scheme, the Centre transfers an 81.04 billion, marking a 14% increase from the previous
amount of Rs 6,000 per year, in three equal installments, year
directly into the bank accounts of all landholding Q 39. Ans. D
farmers irrespective of the size of their land holdings.
3 It was launched in February 2019. Explanation:
It is a Central Sector Scheme with 100% funding from Tax to GDP ratio measures how much tax is collected
the Government of India. in relation to the country’s GDP.
It is being implemented by the Ministry of Agriculture It gives policymakers and analysts a parameter that can
and Farmers Welfare. be used to compare tax receipts from year to year.
The entire responsibility of identifying beneficiary The better the country’s financial situation, the higher
farmer families rests with the State/UT Governments. the tax-to-GDP ratio. The ratio indicates how well the
It aims to implement a Direct Benefit Transfer (DBT) government can afford its expenses.
system for payment disbursement. Causes of Low Tax to GDP Ratio in India:
3 There is the presence of a large informal/
Q 36. Ans. C
unorganised sector in India, which makes it
Explanation: vulnerable, causing greater tax evasion.
According to Keynes, the concept of meeting 3 There is greater dominance of the agriculture
unexpected expenditure is termed the precautionary sector, for instance, out of 25 crore households in
motive. India, 15 crores belong to the agricultural sector,
This motive refers to holding money to guard against which is exempted from paying taxes.
unforeseen events such as illness, accidents, or other 3 Constant disputes between tax authorities and
emergencies. People and businesses keep a portion of taxpayers, with meagre recovery of tax arrears.
their funds in liquid form to ensure they can handle 3 The direct to indirect tax ratio in India is around
unexpected financial needs or contingencies, providing 55:45 (Budget Estimates 2023-24), whereas on
a financial safety net in uncertain situations average, the OECD economies have a ratio of 50:50.
3 There have been several generous government
Q 37. Ans. C
policies which benefited the richer private sector
Explanation: by providing various tax exemptions.
Gender budgeting was initiated in India in the financial Another factor that contributes to the low tax-to-GDP
year 2005-06. ratio is low per capita income and high poverty.
The first Gender Budget Statement appeared in the Q 40. Ans. C
Union Budget for 2005-06, marking the formal start of
gender-responsive budgeting in the country. Explanation:
This initiative was aimed at ensuring that public Unemployment refers to the condition where
spending addresses gender disparities by tracking individuals actively seek employment but are unable to
and promoting allocations for women’s welfare and secure a job. It serves as a crucial indicator of a nation’s
empowerment through government schemes and economic health.
policies. Open unemployment: If an able person has to depend
Since then, the Ministry of Finance has published on others for survival.
Gender Budget Statements annually alongside the Disguised unemployment: If the number of workers
Union Budget. engaged exceeds the actual required number.
Structural unemployment: When there’s a mismatch

BPSC TEST-8 ECONOMY (SOLUTION) 5

 between the skills of the workforce and the jobs Q 43. Ans. A
available in the market due to fundamental changes in Explanation:
the economy.
Frictional unemployment: Imperfect occupational The 16th Finance Commission, commencing April
mobility of labour. 1, 2026, is chaired by Dr Arvind Panagariya and
Q 41. Ans. C addresses vital responsibilities such as equitable
resource distribution, grants-in-aid principles, and
Explanation: strengthening local governance. It also focuses on
The Labour Bureau brings out the Consumer Price Index disaster management financing and the urbanisation
Number for Industrial Workers (CPI-IW) in India. challenge.
It is an attached office of the Ministry of Labour & The Finance Commission, established under Article 280
Employment, which is responsible for compiling, of the Indian Constitution, is a constitutional body that
maintaining, and releasing the CPI-IW every month. recommends the distribution of tax revenues between
This index measures the change over time in prices of the central and state governments every five years.
a basket of goods and services consumed by industrial The Commission plays a crucial role in maintaining
workers and is used for wage revisions, inflation fiscal federalism, ensuring effective governance, and
measurement, and policy formulation addressing economic disparities among states.
The CPI-IW is mainly used for determining dearness Q 44. Ans. B
allowance (DA) paid to central/state government
employees and workers in the industrial sectors, Explanation:
besides measuring inflation in retail prices, fixation and Fiscal deficit indicates the total borrowing requirements
revision of minimum wages in scheduled employment. of the government. It is calculated as the difference
The CPI has several sub-groups, including food and between total expenditure and total receipts, excluding
beverages, fuel and light, housing and clothing, bedding borrowings.
and footwear. Q 45. Ans. C
Four types of CPI are as follows:
3 CPI for Industrial Workers (IW). Explanation:
3 CPI for Agricultural Labourer (AL). First Plan (1951-56) was based on the Harrod-Domar
3 CPI for Rural Labourer (RL). Model. The Plan mainly focused on the development
3 CPI (Rural/Urban/Combined) (CPI-C) of agriculture.
IW, AL, and RL are compiled by the Labour Bureau It was a successful plan primarily because of good
in the Ministry of Labour and Employment. CPI-C is harvests in the last two years of the plan.
compiled by the National Statistical Office (NSO) in the Q 46. Ans. C
Ministry of Statistics and Programme Implementation.
Explanation:
Q 42. Ans. A
A base year is the reference year whose prices are
Explanation: used to calculate the real growth (minus inflation) in
Statement 1 is correct: The International Monetary national income. The previous base year revision in
Fund (IMF) provides financial assistance and support 2015 changed the base year from 2004-05 to 2011-
exclusively to its member countries, currently 191 12, but faced criticism due to perceived flaws in the
nations, to address balance of payments issues, methodological changes.
economic crises, or to stabilize economies, often with Q 47. Ans. B
policy reform conditions.
Statement 2 is incorrect: Voting rights in the IMF Explanation:
are not distributed equally. They are based on a Commercial Paper is a type of unsecured promissory
quota system, where each member’s voting power note issued by companies with good credit ratings to
is determined by its financial contribution (quota), obtain short-term financing; it is typically sold at a
influenced by factors like GDP, trade, and reserves, discount to its face value, meaning the buyer pays less
giving larger economies greater influence. than the amount they will receive at maturity, and the
Statement 3 is incorrect: The IMF’s assistance is difference represents the interest earned.
typically short- to medium-term, not long-term, aimed Debentures
at addressing immediate balance of payments or crisis 3 Debentures are long-term debt instruments issued
issues. While funding comes from member country by companies to raise funds for a period longer
contributions (quotas), the IMF also borrows from than one year.
members or institutions but does not issue bonds in the 3 They are not necessarily issued at a discount and
traditional market sense to fund assistance. can be secured or unsecured.

6 BPSC TEST-8 ECONOMY (SOLUTION)

 3 Debentures pay a fixed interest to investors and are institutions in India that provide banking services
used for long-term capital needs, not short-term primarily to rural and semi-urban areas, with a focus
funding. on agricultural and rural development
Certificate of Deposit (CD) They were set up in 1975 under the RRB Act, 1976.
3 Certificates of Deposit are short-term, negotiable Aim: To provide credit and banking services to small
money market instruments issued by banks and farmers, labourers, artisans, and rural entrepreneurs to
financial institutions. boost agriculture, trade, and small industries.
3 They are issued at a discount to face value and have Establishment: Set up by the Central Government on
fixed maturity periods, typically ranging from a few the request of a sponsor bank
months up to a year. Joint Ownership: Owned by the Central Government
3 CDs are used by banks to raise funds from the (50%), the State Government (15%), and the sponsoring
public and institutional investors. bank (35%).
Commercial Bills Supervision and Regulation
3 Commercial bills are short-term, negotiable 3 RRBs are regulated by the RBI under the Banking
instruments used in trade finance. Regulation Act, 1949.
3 They are issued by a seller (drawer) to a buyer 3 NABARD supervises RRBs.
(drawee) as payment for goods sold on credit. 3 For tax purposes, they are treated as cooperative
3 These bills are usually backed by a trade transaction societies under the Income Tax Act, 1961.
and can be discounted with banks for immediate Q 52. Ans. C
funds. They are secured by the underlying sale of
goods and typically mature in 30 to 180 days Explanation:

Q 48. Ans. D The loan limit under the Modified Interest Subvention
Scheme (MISS) for Kisan Credit Cards (KCC) was
Explanation: increased from ₹3 lakh to ₹5 lakh in the Union Budget
The PM SVANidhi scheme is a micro-credit facility for 2025-26. This enhanced limit aims to benefit 7.7 crore
street vendors, launched by the Ministry of Housing farmers, dairy and fishermen. The increase in the KCC
and Urban Affairs (MoHUA). limit is part of the government’s efforts to enhance
The scheme provides collateral-free loans to street agricultural credit and support farmers.
vendors to help them restart their businesses, especially Kisan Credit Card scheme was introduced in 1998 for
after the economic impact of the COVID-19 pandemic. providing adequate and timely credit support from the
Q 49. Ans. A banking system, under a single window with flexible and
simplified procedure to the farmers for their cultivation
Explanation: and other needs like purchase of agricultural inputs
The balance of payments (BOP) is the record of all such as seeds, fertilisers, pesticides, etc., and to draw
international transactions (all import and export cash for their production needs.
transactions of a country during a given period of time, Q 53. Ans. C
normally a year) made by the residents of a country.
It measures the relative demand for the rupee against Explanation:
foreign currencies, crucially influencing exchange rates While maintaining a balance between government
and economic stability. revenue and expenditure and ensuring equilibrium
Q 50. Ans. B between aggregate demand and supply are
important aspects, fiscal policy specifically refers
Explanation: to the government’s deliberate use of taxation,
The Liberalised Exchange Rate Management System spending, and borrowing to steer macroeconomic
(LERMS) was introduced in the Union Budget 1992–93 outcomes such as growth, employment, and
by the Finance Minister as part of broader economic inflation.
reforms. It marked a significant shift in India’s Q 54. Ans. A
foreign exchange regime by moving toward a market-
determined exchange rate system. Under LERMS, a Explanation:
dual exchange rate system was introduced, which later The Financial Inclusion Index for India is released by
evolved into a unified exchange rate mechanism in the Reserve Bank of India (RBI). The RBI developed and
1993. publishes this composite index annually to measure the
Q 51. Ans. B extent of financial inclusion across the country, using
indicators such as access, usage, and quality of financial
Explanation: services
RRB stands for Regional Rural Bank. They are financial

BPSC TEST-8 ECONOMY (SOLUTION) 7

Q 55. Ans. C control, insulate banks from political interference,
Explanation: and align Indian PSBs with international governance
standards.
Union Budget 2025-26 Theme: “Sabka Vikas” These reforms were considered crucial for improving
Key focus on Garib, Youth, Annadata, and Nari the competitiveness, risk management, and overall
(GYAN). health of India’s public sector banking system.
Four powerful engines of growth are: Agriculture, Q 59. Ans. B
MSME, Investment, and Exports
Explanation:
Q 56. Ans. B
The price at which the government purchases
Explanation: foodgrains for maintaining the public distribution
The money multiplier in India is defined as the ratio system (PDS) and for building up buffer stocks is
of Broad Money (M3) to Reserve Money (also called known as the Procurement Price.
High-Powered Money or Base Money). It shows how The procurement price is the rate at which the
much the money supply (broad money) can increase government buys crops from farmers after harvesting,
for every unit increase in the reserve money controlled specifically to maintain buffer stocks and supply the
by the Reserve Bank of India (RBI). PDS.
Q 57. Ans. D It is usually announced before the harvest season and
is often set slightly higher than the Minimum Support
Explanation: Price (MSP) but below prevailing market prices.
The Gandhian Plan was expounded in 1944 by Shriman While MSP is a guaranteed minimum price announced
Narayan Agarwal. before sowing to protect farmers from price falls,
Shriman Narayan Agarwal formulated the Gandhian the procurement price is the actual price paid by the
Plan in 1944, emphasising economic development government when it purchases foodgrains for public
based on Mahatma Gandhi’s principles. distribution and stockpiling.
The plan focused on self-reliance, decentralisation, Agencies like the Food Corporation of India (FCI) and
and promoting small-scale and cottage industries, with state agencies are responsible for procuring grains at
agriculture as the central pillar. this price.
Unlike other plans of the era that favoured heavy Q 60. Ans. C
industrialisation (such as the Bombay Plan and the
Nehruvian approach), the Gandhian Plan advocated Explanation:
for a decentralised economy with self-sufficient villages A recession is an economic downturn characterised
and employment-oriented growth. by a decline in a country’s real GDP which is total
While it was not fully implemented, the Gandhian economic output adjusted for inflation, for at least two
Plan influenced later rural development and policies consecutive quarters.
supporting village industries in India. It reflects reduced economic activity, often leading
Q 58. Ans. A to falling real incomes, rising unemployment, and
decreased consumer spending and business investment.
Explanation: Recessions can impact living standards and economic
The P.J. Nayak Committee is related to bank governance stability until recovery begins.
reform in India. Q 61. Ans. B
The P.J. Nayak Committee was constituted by the
Reserve Bank of India in 2014 to review and recommend Explanation:
improvements in the governance of bank boards, The “Plan Holiday” occurred from 1966 to 1969, after
especially for Public Sector Banks (PSBs). the failure of the Third Five-Year Plan (1961–1966).
Its primary objectives were to analyse the existing This break was caused by economic crises, including
governance framework of PSBs and suggest measures the Indo-Pakistan war, severe droughts, and the
to enhance their autonomy, professionalism, and devaluation of the rupee, which made it difficult to
operational efficiency. continue with long-term planning.
Key recommendations included repealing the Bank During these three years, instead of launching a
Nationalisation Acts, establishing a Bank Investment new Five-Year Plan, the government implemented
Company (BIC) to hold government shares in PSBs, three Annual Plans to address immediate economic
and creating an interim Bank Boards Bureau (BBB) to challenges and stabilize the economy.
oversee appointments and governance until the BIC The period also saw the initiation of the Green
was formed. Revolution and laid the groundwork for the Fourth
The committee aimed to reduce direct government Five-Year Plan.

8 BPSC TEST-8 ECONOMY (SOLUTION)

Q 62. Ans. C Recognised as one of the world’s largest rural telecom
Explanation: projects, it seeks to deliver affordable internet access to
enable e-health, e-education, and e-governance services
Statement 1 is incorrect: The Startup India initiative in rural areas.
was officially launched by the Government of India on PM WANI (Prime Minister’s Wi-Fi Access Network
16th January 2016, not in January 2014. The program Interface) is a complementary scheme that uses
was announced by Prime Minister Narendra Modi on BharatNet’s infrastructure to set up public Wi-Fi
15th August 2015 and formally launched in January hotspots via Public Data Offices (PDOs). It helps
2016 to promote innovation, entrepreneurship, and to make internet access affordable and widely available,
build a strong startup ecosystem in the country. especially in rural and semi-urban areas.
Statement 2 is incorrect: Under the Startup India UNNATI: Uttar Poorva Transformative
initiative, eligible startups are provided with income Industrialization Scheme, launched by the Department
tax exemptions for 3 consecutive financial years out for Promotion of Industry and Internal Trade (DPIIT)
of their first 10 years since incorporation. This benefit for industrial development in the North Eastern Region
is aimed at helping startups become financially viable (NER), to boost economic growth by supporting
during their early stages. industries in the manufacturing and services sectors. It
Q 63. Ans. C provides incentives and assistance to meet the region’s
evolving industrial needs, promoting innovation,
Explanation: performance, and inclusive development.
Remittances are financial transfers made by individuals Q 67. Ans. B
working abroad to support their families in their home
country.According to the World Bank, India secured Explanation:
14.3% of Global Remittances in 2024, highest share The Central Board of Direct Taxes (CBDT) is
ever. responsible for the administration of direct taxation in
Top five recipients in 2024: India at $129 billion India.
(Compared to $125 billion in 2023), Mexico, China, The CBDT is a statutory authority under the
Philippines, and Pakistan, driven by recovery in job Department of Revenue, Ministry of Finance.
markets in high-income countries of OECD. It oversees the formulation of policies, administration,
Q 64. Ans. B enforcement, and collection of direct taxes such as
income tax and corporate tax across India.
Explanation: The CBDT supervises the Income Tax Department,
The Union government under the Union Budget (2025- ensures taxpayer compliance, investigates tax evasion,
26) has announced the establishment of a National and handles legal matters related to direct taxes.
Institute of Food Technology, Entrepreneurship and Q 68. Ans. B
Management in Bihar as part of its vision for the
Purvodaya initiative. Explanation:
The establishment of NIFTEM in Bihar will bridge these Statement 1 is incorrect: The Union Budget 2025-26
gaps and create new opportunities for local farmers, has revised the definition of MSME investment to 2.5
entrepreneurs, and youth. crore for Micro, 25 crore for small, and 125 crore for
Q 65. Ans. B Medium enterprises.
Statement 2 is correct:
Explanation: 3 AGRICULTURE- 1st Engine of Development.
Engel’s Law is an economic theory put forth in 1857 3 MSME- 2nd Engine of Development.
by Ernst Engel, a German statistician. It states that 3 INVESTMENT- 3rd Engine of Development.
the percentage of income allocated for food purchases 3 EXPORTS - 4th Engine of Development.
decreases as a household’s income rises, while the Q 69. Ans. B
percentage spent on other things (such as education
and recreation) increases. Explanation:

Q 66. Ans. A The Tendulkar Formula is primarily associated with

the estimation of poverty levels in India. The Tendulkar
Explanation: Committee, established in 2005 and reporting in 2009,
Launched in 2011 as the National Optical Fibre introduced a revised methodology for determining the
Network (NOFN) and renamed BharatNet in 2015, this poverty line, moving away from the earlier calorie-
initiative under the Ministry of Communications aims based approach and incorporating private expenditure
to provide high-speed broadband connectivity to all on health and education, as well as updated price
Gram Panchayats across India. adjustment procedures.

BPSC TEST-8 ECONOMY (SOLUTION) 9

Q 70. Ans. B 3 A normal monsoon
Explanation: 3 Continued momentum in domestic demand and
investments
Bihar’s Industry Minister announced the setting The Survey also emphasised the role of structural
up of Special Economic Zones (SEZs) in Buxar and reforms, increased public capex, and the PLI
West Champaran. These zones will be established (Production Linked Incentive) schemes in sustaining
in Navanagar of Buxar and Kumarbagh of West medium-term growth.
Champaran. Despite global uncertainties, India’s resilience in external
SEZs are zones within a country that are often duty- sector management, robust banking system, and strong
free (fiscal concessions) and have different trade and service exports were cited as reasons for optimism.
commercial laws primarily to encourage investment Q 75. Ans. C
and create employment.
3 These are also created to better administer these Explanation:
areas, making it easier to do business Statement 1 is correct: The PM Surya Ghar: Muft
Q 71. Ans. B Bijli Yojana aims to provide free electricity up to 300
units per month to 1 crore households by installing
Explanation: rooftop solar panels. The scheme’s goal is “to power
Services exports surged to $387.5 billion in FY 2024– one crore households” and “provide free electricity” via
25, up 13.6% from the previous year, significantly subsidised rooftop solar systems, with a typical 3 kW
contributing to the overall export growth. installation generating around 300 units monthly.
Q 72. Aans. A Statement 2 is correct: The scheme has a financial
allocation of ₹75,021 crore and will be implemented
Explanation: until FY 2026–27. Households can access collateral-free
Statement 1 is correct: Angel Tax is a tax imposed on loans up to ₹2 lakh at a subsidised 6.75% interest rate
the premium received by unlisted companies (startups) through 12 public sector banks, with a streamlined 15-
when shares are issued at a price above their fair market day subsidy transfer process
value, as per Section 56(2)(viib) of the Income Tax Act, Q 76. Ans. C
1961.
Statement 2 is incorrect: The term “Angel Tax” is a Explanation:
colloquial term and not officially mentioned in the Kharif crops are monsoon crops sown with the rains
Income Tax Act, 1961. and harvested at the season’s end, thriving in warm,
Statement 3 is correct: The tax was introduced to humid conditions. Examples of Kharif crops include:
prevent money laundering and the circulation of 3 Cereals: Rice, Maize, Sorghum (Jowar), Bajra (Pearl
unaccounted money through inflated share valuations Millet)
in startups. 3 Pulses: Green Gram (Moong), Black Gram (Urad),
Statement 4 is incorrect: Angel Tax applies to Pigeon Pea (Toor)
investments by both resident and non-resident 3 Oilseeds: Soybean, Groundnut
investors, not exclusively non-residents. 3 Fibre Crops: Cotton
3 Fruits: Banana, Mango, Watermelon
Q 73. Ans. C
3 Vegetables: Okra (Ladyfinger), Brinjal (Eggplant)
Explanation: Rabi crops are winter crops sown after the monsoon and
Capital expenditure (Capex) refers to funds spent on harvested in spring, thriving in cool, dry conditions.
acquiring, upgrading, or maintaining long-term assets Examples of rabi crops include:
like infrastructure, machinery, or equipment. 3 Cereals: Wheat, Barley, Oats
Capex is distinct from revenue expenditure, which 3 Pulses: Chickpea (Gram), Lentils, Peas, Pigeon Pea,
covers day-to-day operational costs like the purchase of Kulthi (Horse Gram), Masoor (Red Lentil), Lobias
raw materials, payment of wages, and rent payments. (Lobia Beans)
3 Oilseeds: Mustard, Linseed, Sesame
Q 74. Ans. B
3 Vegetables: Peas, Onion, Garlic, Potato, Carrot,
Explanation: Cauliflower, Beetroot, Brinjal (Eggplant), Broccoli,
The Economic Survey 2024–25 projects India’s real Cabbage, Capsicum, Radish, Spinach, Sweet Potato,
GDP growth in the range of 6.3% to 6.8% for the Tomato
financial year 2025–26 (FY26). 3 Fruit: Strawberry
This forecast is based on assumptions of: 3 Spices and Seeds: Cumin, Coriander, Fenugreek
3 Continued macroeconomic stability 3 Seed Plants: Alfalfa (Lucerne), Isabgol (Psyllium),
3 Moderation in global commodity prices Sunflower.

10 BPSC TEST-8 ECONOMY (SOLUTION)

Q 77. Ans. B India is not a member of the International Centre for
Explanation: the Settlement of Investment Disputes.
Q 83. Ans. A
According to the latest Annual Periodic Labour Force
Survey (PLFS) Reports, the percentage of workers in Explanation:
the agriculture sector increased marginally from 45.5% The Arvind Mayaram Committee, constituted by
in 2021-22 to 45.8% in 2022-23 and further to 46.1% in the Indian government, made key recommendations
2023-24. regarding Foreign Direct Investment (FDI) and Foreign
Q 78. Ans. B Portfolio Investment (FPI) in 2014. Specifically, it
recommended that investments of 10% or more in a
Explanation: listed company should be treated as FDI.
A regressive tax imposes a greater burden (relative to Kelkar Committee: Focused on tax reforms and fiscal
resources) on the poor than on the rich. In a regressive consolidation, not specifically FDI.
tax system, lower-income individuals pay a higher Bimal Jalan Committee: Related to banking sector
percentage of their income compared to higher- reforms and governance, particularly for the Reserve
income individuals, making the tax disproportionately Bank of India.
burdensome for those with fewer resources. Chanda Kochhar Committee: No such committee
Q 79. Ans. D exists related to FDI; Chanda Kochhar is a former
banking executive, not associated with FDI policy
Explanation: reform committees.
Headline inflation - Total inflation within an economy Q 84. Ans. C
Core inflation - The rate of increase in prices excluding
volatile items like food and energy Explanation:
Greedflation - Exploitation of inflation by The Tobin tax is a duty proposed on spot currency
corporations trades to penalise short-term currency trading in order
Q 80. Ans. C to stabilise markets and disincentive speculation.
It is a tax on all spot conversions of one currency into
Explanation: another.
The primary deficit represents the difference between a The main purpose of the Tobin Tax is to curb excessive
government’s fiscal deficit and its interest payments on currency speculation by taxing foreign exchange
existing debt. transactions.
Q 81. Ans. C Q 85. Ans. A
Explanation: Explanation:
High-powered money (M0), also known as the Statement 1 is correct: Section 13 of the Negotiable
monetary base or reserve money, is the total liability of Instruments Act, 1881, explicitly defines negotiable
the central bank (RBI in India). It forms the foundation instruments as promissory notes, bills of exchange, or
of the entire money supply in an economy and includes cheques payable either to order or to bearer.
currency in circulation and deposits held by commercial Statement 2 is incorrect: The Act applies to all
banks with the central bank. negotiable instruments (promissory notes, bills of
Q 82. Ans. B exchange, and cheques) used in India, regardless of
whether they are issued by government authorities or
Explanation: private individuals/entities.
The World Bank Group is an international partnership Q 86. Ans. B
comprising 189 countries and five constituent
institutions that work towards eradicating poverty and Explanation:
creating prosperity. The perfect competition definition is an ideal world
The five development institutions under the World economic system where the companies are in no
Bank Group are: direct competition, and all the available resources are
3 International Bank for Reconstruction and efficiently allocated.
Development (IBRD) The actual markets do not function in this manner.
3 International Development Association (IDA) It is an imaginary market system with multiple buyers
3 International Finance Corporation (IFC) and sellers. The buyers have access to the same products
3 Multilateral Guarantee Agency (MIGA) and have equal knowledge levels. There are no unfair
3 International Centre for the Settlement of advantages, and no company has a significant market
Investment Disputes (ICSID) share.

BPSC TEST-8 ECONOMY (SOLUTION) 11

Q 87. Ans. D point of view of monetary and financial statistics,
Explanation: the households and nonprofit institutions serving
households are, in some cases, combined into one
Economic reforms were implemented in India primarily subsector named “Other resident sectors”.
to address a severe balance of payments crisis and a Statements 3 and 4 are incorrect: A commercial bank
declining public sector, along with the need for faster lending money to a trading company and a corporate
economic growth and increased foreign investment. body issuing Rupee-denominated Bonds overseas does
These reforms, initiated in 1991, were a response to the not constitute the real sector.
economic crisis. Q 90. Ans. C
Negative Balance of Payments (BoP): India faced a
severe BoP crisis, with foreign exchange reserves falling Explanation:
to dangerously low levels, barely enough to finance a The Commission for Agricultural Costs and Prices
few weeks of imports. (CACP) recommends the MSP, which is then approved
Gulf War: The First Gulf War in 1990-91 led to a sharp by the Cabinet Committee on Economic Affairs
rise in global crude oil prices, further worsening India’s (CCEA).
BoP situation and increasing the import bill. The Minimum Support Price (MSP) is the minimum
Increase in Fiscal Deficit: Throughout the 1980s, India’s price set by the government to ensure farmers receive
fiscal deficit kept rising due to high non-developmental fair value for their crops, even when market prices fall.
expenditure, leading to increased public debt and This concept was introduced in 1966-67 during the
mounting interest obligations. Green Revolution as part of agricultural reforms.
Q 88. Ans. D MSP serves as a safety measure taken by the union
government to protect farmers from financial losses
Explanation: and maintain food security.
Inflation refers to a steady rise in the prices of various The Indian government announces MSP twice a year,
goods and services in the economy. before the Kharif (monsoon) and Rabi (winter) sowing
To control inflation RBI needs to take some important seasons.
measures like: Q 91. Ans. C
3 Increase Cash Reserve Ratio: Increasing the Cash
Reserve Ratio (CRR) reduces the amount of funds Explanation:
banks can lend, decreasing the money supply and Statement 1 is correct: The N.K. Singh Committee,
helping control inflation. officially known as the Fiscal Responsibility and Budget
3 Adopt a contractionary monetary policy: A Management Act Review Committee, was formed in
contractionary monetary policy involves reducing 2016 to review the Fiscal Responsibility and Budget
the money supply or increasing interest rates to Management (FRBM) Act of 2003. The committee,
curb inflation. chaired by N.K. Singh, a former Revenue and
3 Increase the marginal standing facility: Correct. Expenditure Secretary, aimed to assess the effectiveness
Increasing the Marginal Standing Facility (MSF) of the FRBM Act and suggest necessary amendments.
rate makes borrowing costlier for banks, reducing Its report, submitted in 2017, focused on revising
liquidity and helping control inflation. fiscal deficit targets and recommended creating an
Decrease the bank rate: Decreasing the bank rate independent Fiscal Council
reduces borrowing costs, increasing the money supply, Statement 2 is correct: The FRBM Act, 2003, prohibits
which can increase inflation rather than control it. the central government from borrowing directly
Q 89. Ans. A from the Reserve Bank of India through primary
issues of securities (monetisation of deficit) to reduce
Explanation: inflationary risks, with limited exceptions.
Statements 1 and 2 are correct: The real sector of an Q 92. Ans. D
economy is the key section as activities of this sector
influence economic output and is represented by those Explanation:
economic segments that are essential for the progress Purchasing Power Parity (PPP) is a cornerstone
of GDP of the economy. Therefore, farmers harvesting economic theory used to compare the real purchasing
their crops and textile mills converting raw cotton power of currencies across nations.
into fabrics are included under the real sector of an It posits that exchange rates should adjust to equalise
economy. the cost of a standardised basket of goods and
3 The real sector of the economy consists of enterprises services between countries, accounting for price level
(nonfinancial corporations), households and differences.
nonprofit institutions serving households. From the By measuring how much of this basket can be

12 BPSC TEST-8 ECONOMY (SOLUTION)

 purchased in each country, PPP facilitates cross- Q 96. Ans. A
country comparisons of economic productivity and Explanation:
living standards, reflecting the true value of currencies
in terms of real goods and services. The Finance Minister of India during the LPG
Q 93. Ans. C (Liberalisation, Privatisation, and Globalisation)
reforms of 1991 was Manmohan Singh.
Explanation: In 1991, India faced a severe economic crisis with
The Lorenz curve is a graphical representation and critically low foreign exchange reserves and a looming
analytical tool employed to measure income inequality balance of payments problem. As Finance Minister
within a population. The degree of curvature in the in the P.V. Narasimha Rao government, Manmohan
Lorenz curve indicates the extent of inequality: a Singh introduced sweeping economic reforms focused
greater deviation from the line of equality signifies on liberalising the economy, reducing government
higher income disparity. This tool is fundamental in control, and opening up to foreign investment.
economics for assessing the distribution of income These reforms, collectively known as the LPG reforms,
or wealth and is often used in conjunction with the dismantled the Licence Raj and transformed India into
Gini coefficient, which quantifies inequality based a more market-driven economy, setting the stage for
on the area between the Lorenz curve and the line of rapid economic growth in the following decades.
equality. Q 97. Ans. B
The Engel curve examines the relationship between
income and expenditure on specific goods. Explanation:
The Phillips curve explores the trade-off between The Capital Adequacy Ratio (CAR) represents the
inflation and unemployment. ratio of a bank’s capital to its risk-weighted assets. This
The Kuznets curve hypothesises a relationship between metric is used to assess a bank’s financial strength and
economic development and inequality over time. its ability to absorb potential losses.
Q 94. Ans. A When a bank maintains a high CAR, it has a strong
capital cushion to absorb potential losses. This financial
Explanation: strength allows the bank to lend more freely, expand
The Rourkela Steel Plant was set up in 1959 in its services, and take on new business opportunities
Odisha with significant assistance from Germany, without breaching regulatory requirements.
involving German technical expertise, equipment, If a bank’s CAR falls below regulatory thresholds, it
and consultancy from firms like Krupp, Demag, and faces restrictions on lending and expansion. Regulators
Siemens. may require the bank to hold back on issuing new loans
Bokaro Steel Plant, located in Jharkhand, was established or even take corrective actions to restore its capital
with Soviet (Russian) collaboration, not with the UK. position.
The Durgapur Steel Plant in West Bengal was set up Q 98. Ans. C
with assistance from the United Kingdom (Britain), not
Russia. Explanation:

Q 95. Ans. D Statement 1 is incorrect: NBFCs are engaged in the

business of loans and advances, acquisition of shares,
Explanation: stocks, bonds, debentures, securities, etc., issued by
Currency appreciation directly refers to an increase government or local authority or other marketable
in the value of a domestic currency relative to other securities, leasing, hire-purchase, insurance business,
currencies in the foreign exchange market. chit business, but do not include any institution
This means that, for example, one unit of the domestic whose principal business is that of agriculture activity,
currency can now purchase more units of a foreign industrial activity, or purchase or sale of any goods
currency. While an increase in demand for the domestic (other than securities) or providing any services and
currency often contributes to appreciation (due to sale/purchase/construction of immovable property.
factors like higher interest rates, strong economic Statement 2 is correct: The Deposit Insurance and
growth, or market confidence), the direct impact of Credit Guarantee Corporation (DICGC) provides
appreciation is the increase in value. deposit insurance for banks, but this protection does
In contrast, currency depreciation occurs when a not extend to depositors of deposit-taking NBFCs,
currency loses value compared to another currency. making such deposits riskier.
Countries may use currency appreciation strategically Statement 3 is incorrect: The general minimum
to improve trade balances, reduce import costs, and net owned fund requirement for a company to be
enhance economic prospects. recognised as an NBFC is ₹2 crore, not ₹100 crore, as
per RBI guidelines.

BPSC TEST-8 ECONOMY (SOLUTION) 13

Q 99. Ans. B was presented by R. K. Shanmukham Chetty on 26
Explanation: November 1947.
He was the country’s first Finance Minister and
Stagflation describes an economy facing a simultaneous delivered this historic budget, which set the foundation
increase in inflation (rising prices of goods and for India’s fiscal policy after independence.
services) and rising unemployment, often accompanied Q 103. Ans. B
by stagnant or slow economic growth. This rare
combination challenges traditional economic policies, Explanation:
as addressing inflation may worsen unemployment, The committee that suggested the enactment of the
and vice versa. Competition Act, 2002, was the S. V. S. Raghavan
Hyperinflation refers to an extremely rapid, out- Committee. This committee’s recommendations led
of-control increase in prices, often exceeding 50% to the replacement of the Monopolies and Restrictive
per month, but does not necessarily involve rising Trade Practices Act, 1969, with the Competition Act,
unemployment. 2002.
Deflation is a decrease in the general price level of goods The Competition Commission of India (CCI),
and services, the opposite of inflation, and is not tied to established under the Competition Act, 2002, is India’s
rising unemployment in this context. primary competition regulator. Formed on October 14,
A recession is a period of declining economic output 2003, and operational since May 2009, this statutory
(GDP) for two consecutive quarters, often with rising body under the Ministry of Corporate Affairs is based
unemployment, but it does not specifically require in New Delhi.
inflation. Superseding the MRTP Act of 1969, the CCI modernises
Q 100. Ans. A India’s competition framework in line with global
norms.
Explanation:
Q 104. Ans. B
Assertion (A) is correct: The repo rate is the interest
rate at which the central bank (e.g., Reserve Bank of Explanation:
India) lends short-term funds to commercial banks. Statement 1 is incorrect: The Prime Minister Dhan-
Increasing the repo rate makes borrowing more Dhaanya Krishi Yojana (PMDKY) is implemented by
expensive, which can reduce liquidity in the economy. the Ministry of Agriculture & Farmers’ Welfare, not
This curbs excess demand, slowing the rise in prices the Ministry of Finance. The scheme aims to enhance
of goods and services, thereby reducing inflationary agricultural productivity through crop diversification
pressures, which is an effective monetary policy tool in and sustainable agricultural practices.
high-inflation scenarios. Statement 2 is correct: By integrating existing
Reason (R) is correct and correctly explains Assertion schemes with targeted interventions, the programme
(R): A higher repo rate increases the cost for commercial aims to cover 100 districts characterised by low
banks to borrow from the central bank. This leads banks agricultural productivity, moderate crop intensity, and
to raise their own lending rates, making loans costlier below-average credit indicators.
for businesses and consumers. As a result, borrowing, Statement 3 is correct: A major objective of PMDKY
consumer spending, and investment decline, reducing is to develop and strengthen post-harvest storage
the money supply in circulation and easing demand- infrastructure at the Panchayat and Block levels to
driven inflation. minimise wastage and improve price realisation for
Q 101. Ans. A farmers.

Explanation: Q 105. Ans. C

The National Bank for Agriculture and Rural Explanation:

Development (NABARD) was established on July 12, The total expenditure in Budget Estimates (BE) 2025-
1982, under the NABARD Act, 1981. 26 is estimated at ₹50,65,345 crore of which total capital
It was created to promote sustainable and equitable expenditure is ₹11,21,090 crore and effective capital
agriculture and rural development, taking over expenditure is ₹15,48,282 crore.
functions previously handled by the Reserve Bank of Q 106. Ans. B
India, such as providing credit for agriculture, small
industries, and rural infrastructure. Explanation:

Q 102. Ans. B The allocation for the Pradhan Mantri Kisan Samman
Nidhi (PM-Kisan) scheme in the Union Budget
Explanation: Estimate for 2025-26 is ₹63,500 crore.
The first-ever Union Budget of Independent India PM-Kisan is a Central Sector scheme, fully funded by

14 BPSC TEST-8 ECONOMY (SOLUTION)

 the Government of India, launched in December 2018 Q 113. Ans. A
to provide direct income support to all landholding Explanation:
farmer families across the country.
Q 107. Ans. D The Alkire-Foster method is a methodology for
measuring multidimensional poverty, developed by
Explanation: Sabina Alkire and James Foster, that captures multiple
Budget Estimate for 2025-26 for Mahatma Gandhi deprivations experienced by individuals and households
National Rural Employment Guarantee Programme as in different aspects of their lives.
₹86,000 crore, which is higher than Samagra Shiksha It’s used to construct the Multidimensional Poverty
(₹41,250 crore), PMAY-G (₹54,832 crore), and JJM Index (MPI), which provides a comprehensive
(₹67,000 crore). assessment of poverty beyond just income.
Q 108. Ans. A Q 114. Ans. A
Explanation: Explanation:
In Budget Estimate (BE) 2025–26, the total resources Fiat money is a currency declared legal tender by a
transferred to the States—including devolution of the government, meaning it must be accepted for payment
State’s share, grants/loans, and releases under Centrally of debts. It lacks intrinsic value, meaning it isn’t backed
Sponsored Schemes—amount to ₹25,01,284 crore, by a commodity like gold.
reflecting an increase of ₹4,91,668 crore over the actuals Q 115. Ans. C
of FY 2023–24.
Explanation:
Q 109. Ans. B
The Trade-Related Aspects of Intellectual Property
Explanation: Rights (TRIPS) Agreement is administered and
The largest source of revenue for the government, as overseen by the World Trade Organisation (WTO).
per the Union Budget 2025-26, is Borrowings & Other TRIPS is an international legal agreement binding all
Liabilities. It was 24% of the total revenue. WTO member nations and sets minimum standards
Income Tax (22%), Goods & Services Tax & Other for the regulation and protection of various forms
Taxes (18%) and Corporation (17%) are the next three of intellectual property, such as copyrights, patents,
highest contributors. trademarks, and more.
Q 110. Ans. A The WTO’s Council for TRIPS is specifically responsible
for monitoring the implementation, compliance, and
Explanation: administration of the agreement, as well as providing a
The Barauni industrial area in Begusarai is known for forum for consultations and dispute resolution among
its fertilizer production. member countries.
Specifically, Barauni is home to the Barauni Fertilizer Q 116. Ans. A
Plant of Hindustan Urvarak & Rasayan Limited
(HURL), which produces urea. Explanation:

Q 111. Ans. C ZBNF strictly avoids synthetic or chemical inputs,

including synthetic micronutrients, and instead relies
Explanation: on natural preparations like Beejamrit, Jeevamrit,
Tariffs are taxes imposed on imported goods, making Acchadana, and Waaphasa.
them more expensive compared to domestically Zero budget natural farming was formulated by
produced goods. This helps shield local industries from Subhash Palekar.
cheaper foreign products, encouraging consumers to It was first practised by a Japanese farmer and
buy domestic goods and supporting local economies. philosopher, Masanobu Fukuoka.
Q 112. Ans. D Q 117. Ans. B
Explanation: Explanation:
Effective Capital Expenditure (Eff-Capex) is the sum of The International Bank for Reconstruction and
the government’s capital expenditure and grants-in-aid Development (IBRD), established in 1944 at the
given for the creation of capital assets. This measure Bretton Woods Conference, is the main lending arm
provides a more accurate picture of total public of the World Bank Group and is headquartered in
investment, as it includes both direct government Washington, D.C. Originally created to help Europe
spending on assets and financial support to states or rebuild after World War II, its mandate quickly
agencies for asset creation expanded to promoting economic development and
poverty reduction worldwide.

BPSC TEST-8 ECONOMY (SOLUTION) 15

Q 118. Ans. A Q 123. Ans. A
Explanation: Explanation:

The committee related to small-scale industries is the Statement 1 is correct: FCA forms the largest share
D.K. Karve Committee (also known as the Village of India’s total foreign exchange reserves. It includes
and Small Scale Industries Committee). It was set up assets like US dollar-denominated securities, bonds,
by the Planning Commission in 1955 to assess and treasury bills, etc.
promote the potential of small-scale industries for rural Statement 2 is incorrect: India’s forex reserves include:
development in India 3 Foreign Currency Assets (FCA)
3 Gold Reserves
Q 119. Ans. D
3 Special Drawing Rights (SDRs)
Explanation: 3 Reserve Tranche Position (RTP) with the IMF
According to the latest data from the Economic Q 124. Ans. C
Survey 2024–25, renewable energy contributes to 47
% of India’s total installed power generation capacity. Explanation:
It highlights an increasing reliance on cleaner energy EoDB 2.0 (Ease of Doing Business 2.0) refers to a
sources that are not based on fossil fuels. systematic approach to deregulation in India aimed at
The renewable energy sources are solar, wind, hydro improving the business environment.
and bioenergy. It is divided into two phases:
The government aims to broaden the scope of renewable 3 Phase 1 – Already Pursued Initiatives:
energy. ƒ These measures have already been
Q 120. Ans. C implemented to reduce bureaucratic hurdles
and promote ease of doing business:
Explanation: ƒ Reduced compliance burden
As per the Economic Survey 2024–25, India’s market ƒ Saving businesses time and administrative
capitalisation to GDP ratio as of December 2024 is costs
136%. ƒ Streamlined systems, processes, and
Q 121. Ans. C information flow
ƒ Eliminating redundancies and clarifying
Explanation: process flows
Demat Accounts: The actual growth in demat accounts ƒ Digitised systems and interaction platforms
was a 33% year-on-year increase, reaching 18.5 crore by ƒ Incentives to key sectors and clusters
December 2024 andnot 133%. ƒ Establishing digital means of interaction
Primary Market Mobilisation: ₹11.1 lakh crore was 3 Phase 2 – Proposed/To be Pursued Initiatives:
mobilised from primary markets (equity and debt) ƒ These are future measures planned to deepen
during April–December 2024, which is 5% higher than and institutionalise deregulation:
the amount mobilized in FY24. ƒ Liberalise standards and controls
Mutual Fund Investors: The number of unique mutual ƒ Adopt ‘minimum necessary, maximum
fund investors doubled from 2.9 crore in FY21 to 5.6 feasible’ norms
crore as of December 2024. ƒ Set legal safeguards for enforcement
IPO Activity: IPOs rose to 259 in April–December 2024 ƒ Ensure due process of law via a hierarchy of
(a 32.1% YoY increase), and funds raised through IPOs safeguards
tripled to ₹1.54 lakh crore compared to the previous ƒ Reduce or remove government fees/tariffs
year. ƒ Use risk-based regulation, tailoring norms to
Q 122. Ans. C risk profiles and involving third parties
ƒ To enhance the economic freedom of
Explanation: individuals and businesses and unlock domestic
The World Bank’s Ease of Doing Business Report, growth drivers by reducing regulatory friction
which ranked countries based on the ease of conducting and making governance more transparent,
business, was discontinued in 2021 following efficient, and business-friendly.
concerns over data irregularities and ethical issues Q 125. Ans. D
in its compilation. The other indices listed—Global
Competitiveness Index (World Economic Forum), Explanation:
Human Development Index (UNDP), and Global The following 7 states and 1 UT have achieved 100%
Innovation Index (WIPO)—continue to be published tap water connection coverage under the Jal Jeevan
regularly. Mission (JJM) as of 2024:

16 BPSC TEST-8 ECONOMY (SOLUTION)

 3 Arunachal Pradesh of Parliament is responsible for improving social,
3 Goa cultural, and physical infrastructure in selected
3 Haryana villages, focusing on better amenities, livelihood, and
3 Himachal Pradesh human development. SAGY promotes community
3 Gujarat participation and convergence of government schemes
3 Punjab to inspire sustainable rural development.
3 Telangana Q 130. Ans. A
3 Puducherry
Explanation:
Q 126. Ans. D
Statement 1 is correct: The National Scheme for ITI
Explanation: Upgradation is a Centrally Sponsored Scheme with
India has set a target to achieve net zero carbon a total outlay of ₹60,000 crore (₹30,000 Cr Central,
emissions by 2070. This commitment was announced ₹20,000 Cr State, ₹10,000 Cr Industry).
by Prime Minister Narendra Modi at the COP26 Statement 2 is incorrect: It aims to upgrade 1,000
summit in Glasgow in 2021 and reaffirmed in India’s Government ITIs and set up 5 National Centres of
long-term low-carbon development strategy submitted Excellence.
to the United Nations Framework Convention on Statement 3 is incorrect: Over the next five years,
Climate Change. The net zero target covers all key the scheme will train 20 lakh youth through industry-
sectors of the economy, aiming to balance greenhouse aligned courses to meet workforce demands.
gas emissions with their removal from the atmosphere. Q 131. Ans. B
Q 127. Ans. A Explanation:
Explanation: According to the Bihar Economic Survey 2024-25, the
The Economic Survey 2024–25 highlights the Gross State Domestic Product (GSDP) of Bihar for the
importance of thermal power in India’s sustainable year 2023-24 is estimated to be Rs. 8,54,429 crore at
development and specifically emphasises the use of current prices and Rs. 4,64,540 crore at constant (2011-
super-critical, ultra-super-critical, and advanced ultra- 12) prices.
super-critical technologies in coal-based power plants. Q 132. Ans. C
These technologies are promoted to improve efficiency
and reduce the emission intensity of the economy by Explanation:
making coal-based thermal power generation cleaner At constant (2011–12) prices, the tertiary sector is
and more efficient estimated to contribute 58.6% to Bihar’s Gross State
Q 128. Ans. D Value Added (GSVA), followed by the secondary sector
at 21.5% and the primary sector at 19.9%.
Explanation:
Q 133. Ans. C
Economic Survey 2024–25 highlighted the power of
collective action for the environment for the Lifestyle Explanation:
for Environment (LiFE) initiative. They are: As per the Bihar Economic Survey 2024-25, the Bihar
3 13% of the global population adopting a sustainable State government has sanctioned ₹11,900.00 lakh
lifestyle can reduce carbon emissions by 20%. towards agricultural mechanisation to enhance farm
3 Finishing food on the plate can help avoid 90 kg of productivity and reduce manual labour during the year
food waste per person per year. 2023–24.
3 Carpooling can reduce 7.8 lakh rides daily, saving Q 134. Ans. C
380 million litres of fuel annually in India.
3 Recycling one ton of newspaper can prevent 25,000 Explanation:
litres of water wastage. In 2023–24, nine sugar mills in Bihar crushed 677.20
Q 129. Ans. C lakh quintals of sugarcane, resulting in a total sugar
production of 68.77 lakh quintals.
Explanation:
Q 135. Ans. D
As per the Economic Survey 2024–25, the number of
Gram Panchayats adopted by Members of Parliament Explanation:
under the Saansad Adarsh Gram Yojana (SAGY) is As per the PLFS data, Bihar’s LFPR increased from
3,361. 50.9% in 2022–23 to 55.0% in 2023–24, indicating a rise
Saansad Adarsh Gram Yojana (SAGY), launched in in the proportion of people either working or actively
2014, aims to develop model villages by adopting seeking work.
Gram Panchayats for holistic progress. Each Member

BPSC TEST-8 ECONOMY (SOLUTION) 17

Q 136. Ans. B Q 141. Ans. C
Explanation: Explanation:

Statement 1 is incorrect: The Deen Dayal Upadhyaya The Bihar Budget 2025–26 allocated ₹5,972 crore
Grameen Kaushalya Yojana (DDU-GKY) was for Saat Nischay-II, the Chief Minister’s flagship
announced on 25th September 2014. development programme aimed at making Bihar
Statement 2 is correct: DDU-GKY, a flagship program atmanirbhar (self-reliant).
of the Ministry of Rural Development, aims to The scheme focuses on rural infrastructure such
empower rural youth from poor families through skill as village roads and drains, cleanliness initiatives,
development and job placement, with special focus education loans, assistance for unemployed youth, as
on SC/ST, minorities, and women. It operates in 27 well as employment and skill development programmes,
States and 4 UTs, covering 37 sectors and 616 job roles especially for women.
through over 2,369 training centres. Q 142. Ans. C
Statement 3 is correct: In Bihar, the State Rural
Livelihood Mission is known as JEEVIKA, through Explanation:
which the Deen Dayal Upadhyaya Grameen Kaushalya Between 2011 and 2024, Bihar achieved a growth rate
Yojana (DDU-GKY) is implemented to provide of 7.6% in the transport and communication sector,
livelihoods by imparting skills to rural poor youth. ranking third among major states, following Uttar
Till September 2024, 83,806 youths benefited from Pradesh (10.1%) and Karnataka (7.7%).
DDU-GKY training programmes, with 54% securing Q 143. Ans. D
employment, and the total expenditure for skill training
in 2023-24 was Rs. 28.04 crore. Explanation:

Q 137. Ans. B Power Grid Corporation of India Limited is a

Maharatna company.
Explanation: National Fertilizers Limited is a Navratna company.
As per the Bihar Economic Survey 2024-25, total Airports Authority of India is a Miniratna Category I
allocation of ₹3,402.09 crore has been made for company.
the Patna Metro Rail Project, with ₹872.50 crore Engineering Projects (India) Limited is a Miniratna
contributed by the Central government and ₹2,529.59 Category II company.
crore by the State government. Q 144. Ans. D
Additionally, a provision of ₹380.00 crore has been
earmarked for the project in the 2024–25 financial Explanation:
year. The Human Development Index (HDI) measures
Q 138. Ans. D a country’s overall development based on three key
components:
Explanation: 3 Health: Measured by life expectancy at birth,
As per the revised estimates for 2024–25 in the Bihar indicating the average lifespan and general health
Budget 2025–26, the state’s fiscal deficit is expected to conditions.
be 9.2% of GSDP, which is significantly higher than the 3 Education: Assessed through mean years of
budget estimate of 3% of GSDP for the same year. schooling for adults and expected years of schooling
Q 139. Ans. C for children, reflecting knowledge and learning
opportunities.
Explanation: 3 Standard of Living: Measured by Gross National
According to the Bihar Budget 2025–26, Bihar’s per Income (GNI) per capita adjusted for purchasing
capita GSDP at current prices for 2023–24 is estimated power, showing the average income and economic
at ₹66,828, reflecting a 13% increase over 2022–23. well-being.
In comparison, India’s per capita GDP for the same Q 145. Ans. C
period is estimated at ₹2,15,935.
Explanation:
Q 140. Ans. B
Red-Collar Workers – Primary Sector
Explanation: 3 These workers are engaged in outdoor, physically
The sector with the highest allocation in Bihar’s Budget demanding jobs in the Extraction Sector.
for 2025–26 as a percentage of total expenditure is 3 Activities include agriculture, fishing, forestry,
Education. Education received ₹60,964 crore, which mining, and oil & gas extraction.
accounts for 21.7% of the state’s total expenditure 3 This sector provides food and raw materials directly
from natural resources.

18 BPSC TEST-8 ECONOMY (SOLUTION)

 Blue-Collar Workers – Secondary Sector the government, meaning they have a very low risk of
3 They work in the Manufacturing Sector, default.
transforming raw materials into finished goods. In India, the Reserve Bank of India (RBI) plays a key
3 Key activities: manufacturing, construction, and role in the gilt-edged market through its open market
utilities like electricity and water. operations.
3 This sector is the backbone of industrial Q 148. Ans. D
development.
White-Collar Workers – Tertiary Sector Explanation:
3 They are employed in the Service Sector, offering India is the world’s largest producer of Millets,
intangible services to individuals and businesses. contributing 38.40% of global millet production. It is
3 Includes: retail, transport, IT services, finance, etc. also the second-largest producer of Rice (25.27%) and
3 This sector supports both production and Wheat (13.33%), and ranks fifth in Maize production
consumption. (2.9%) globally.
Gold-Collar Workers – Quaternary Sector Q 149. Ans. B
3 These are top-level professionals and decision-
makers in the leadership and governance sector. Explanation:
3 Includes CEOs, government officials, scientists, The MFN principle under the WTO ensures that a
and senior professionals in media, healthcare, and member country must offer the same trade terms
education. (like tariffs or quotas) to all other WTO members,
Q 146. Ans. C promoting non-discriminatory trade practices. It is one
of the foundational rules of the WTO.
Explanation:
Q 150. Ans. B
The World Bank launched the Business Ready
(B-READY) report as its flagship publication to assess Explanation:
the business environment and investment climate The Integrated Manufacturing Cluster (IMC) in Gaya
worldwide, replacing the earlier Ease of Doing Business is being developed as a major industrial node under the
report. Amritsar-Kolkata Industrial Corridor (AKIC).
Q 147. Ans. D This project is a collaboration between the National
Industrial Corridor Development Corporation
Explanation: (NICDC), the Government of Bihar, and the Bihar
The gilt-edged market, also known as the government Industrial Area Development Authority (BIADA).
securities market, is where government and semi- The IMC will cover 1,670 acres near Gaya International
government securities are traded. These securities are Airport and is expected to attract investments of over
considered “gilt-edged” because they are backed by ₹16,500 crore, with a project cost of ₹1,339 crore.

BPSC TEST-8 ECONOMY (SOLUTION) 19

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