introduction to indian economy section 9 MCQ Questions & Answers Detailed Explanation

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The following question based on Introduction to Indian Economy topic of indian economy mcq

Questions : The Narasimham Committee (1991) on financial reforms proposed for establishment of a

(a) Three tier hierarchy of the Banking structure

(b) Four tier hierarchy of the Banking structure

(c) Two tier hierarchy of the Banking structure

(d) Unified control by the apex institutions

The correct answers to the above question in:

Answer: (b)

Two expert Committees were set up in the 1990s under the chairmanship of M. Narasimhan (an exRBI (Reserve Bank of India) governor).

The first Narasimhan Committee (Committee on the Financial System - CFS) was appointed by Manmohan Singh as India’s Finance Minister on 14 August 1991, and the second one (Committee on Banking Sector Reforms) was appointed by P. Chidambaram as Finance Minister in December 1997.

The 1991 committee submitted its report to the Finance Minister in November 1991 which was placed on the table of Parliament on December 17, 1991.

It recommended the introduction of a four-tier banking system in the country:

  1. tier: 3 or 4 International Banks;
  2. tier: 8 to 10 National Banks; .
  3. tier Regional Banks; and
  4. tier: Rural Banks.

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Question : 1

Consider the following statements in regard to devaluation and depreciation of a currency:

  1. Devaluation is an activity conducted by the central government whereas depreciation happens due to market forces.
  2. In both, the devaluation and depreciation currency loses value against other currencies in a floating currency exchange market.
Which of the statements given above is/are correct?

a) 2 only

b) Both 1 and 2

c) 1 only

d) Neither 1 nor 2

Answer: (c)

Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that of other countries. The exchange rate can change only when the government decides to change it.

If a government decides to make its currency less valuable, the change is called devaluation. Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country’s currency.

Question : 2

Nature of unemployment in agriculture in India is

a) only seasonal

b) only disguised

c) Both (a) and (b)

d) None of the above

Answer: (c)

Seasonal employment refers to a situation where a number of persons are not able to find jobs during some months of the year. Example: Agriculture is a seasonal activity.

There is an increased demand for labour at the time of sowing, harvesting, weeding and threshing.

In between, there is little or no demand for labour. Besides, disguised unemployment is also seen in agriculture in India.

Question : 3

Consider the following statements in regard to Hedge funds:

  1. Hedge funds are open to all types of investors.
  2. Hedge funds are immune to risk of the market and always produce positive returns.
  3. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.
Which of the statements given above is/are correct?

a) 1 and 2 only

b) 2 and 3 only

c) 1 only

d) 3 only

Answer: (d)

Hedge funds invest in a diverse range of markets and use a wide variety of investment styles and financial instruments. Hedge funds are open only to certain types of investors in a country specified by the regulator and cannot be offered or sold to the general public.

Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment.

Question : 4

The volatility in the Indian share market is due to

  1. inflow and outflow of foreign funds.
  2. fluctuations in foreign capital markets.
  3. changes in the monetary policy.
Which of the above mentioned causes are correct?

a) 1 and 3

b) 1, 2 and 3

c) 1 and 2

d) 2 and 3

Answer: (b)

Question : 5

The Monetary and Credit Policy is announced by which of the following ?

a) Reserve Bank of India

b) Ministry of Finance in Centre

c) State Bank of India

d) Planning Commission of India

Answer: (a)

Monetary policy is the defining function of the central bank of a country. The Reserve Bank of India announces a set of measures of both short-term and structural nature in the two bi-annual statements on monetary and credit policy. These documents are normally released in April and October of each year.

Question : 6

Consider the following statements about personal Income:

  1. Personal income is that income which is actually obtained by nationals.
  2. Personal Income = National income – undistributed profits of corporation – payments for social security provisions – corporate tax + government transfer payments + Business transfer payments + Net interest paid by government.
Select the correct answer using the codes given below:

a) 2 only

b) 1 and 2

c) 1 only

d) Neither 1 nor 2

Answer: (b)

Personal income is a flow concept.It isthe income that is obtained by nationals. Personal income is obtained by subtracting corporate taxes and payments made for social securities provision from national income and adding to it government transfer payments, business transfer payments and net interest paid by the government.

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