introduction to indian economy section 5 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Open Market Operations (OMOs) are the market operations conducted by the Reserve Bank of India by way of sale/ purchase of Government securities to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.

When the RBI feels there is excess liquidity in the market, it resorts to the sale of securities thereby sucking out the rupee liquidity.

Similarly, when the liquidity conditions are tight, the RBI will buy securities from the market, thereby releasing liquidity into the market.

The two traditional types of OMO’s used by RBI are:

1. Outright purchase (PEMO): Is outright buying or selling of government securities; and
2. Repurchase agreement (REPO): This is the short term, and are subject to repurchase.

Answer: (b)

Coal mines is not an example of economic overheads. Economic overhead is a capital investment into the infrastructure which should encourage new industrial growth and social well being.

The other three schools, sanitary facilities and roads and railways are economic overheads.

Answer: (a)

The Reserve Bank has the sole authority to issue banknotes in India. Reserve Bank, like other central banks the world over, changes the design of banknotes from time to time.

The Reserve Bank has introduced banknotes in the Mahatma Gandhi Series since 1996 and has so far issued notes in the denominations of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 in this series.

Mahatma Gandhi series of Rs.100 notes has a picture of Indian Himalayan mountain ranges on its reverse which is of ecological and environmental significance.

Answer: (c)

Taxes levied, collected and retained by the Centre are:

1. Corporation Tax (Corporate tax)
2. Customs Duties.
3. Surcharge on Income Tax.
4. Taxes on the capital value of assets of individuals and companies.
5. Fees on matters of the Union list.

These taxes belong to the centre exclusively. In other words, no part of the proceeds of these taxes can be assigned to the states.

Answer: (b)

The Finance Commission of India came into existence in 1951. It was established under Article 280 of the Indian Constitution by the President of India.

It was formed to define the financial relations between the centre and the state. The Constitution of India has made several provisions to bridge the gap of finances between the Centre and the States.

These include various articles in the constitution like Article 268, which facilitates a levy of duties by the Centre but equips the states to collect and retain the same.

Similarly, there are Articles 269, 270, 275, 282 and 293 all of which specify ways and means of sharing resources between Union and States. Apart from the above-mentioned provisions, The Indian Constitution provides an institutional framework to facilitate Centre-State TransfeRs.This body is the Finance Commission

Answer: (c)