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Prelims-IAS –ECONOMICS MCQ Ans-07

1..Which among the following is not a macro-economic stabilisation policy?

A. High Government expenditure for poverty alleviation.

B. FRBM Act
C. Inflation targeting
D. Export promotional offers
  • Answer: A
  • Exp: Macroeconomics is a branch of the economics field that studies how the aggregate economy behaves. It studies the behaviour and performance of an economy as a whole.
  • In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in unemployment.
  • Macro-economic stability means controlled fiscal deficit, controlled current account deficit, and controlled inflation along with stable growth. High government expenditure for non capital expenditure will result in possibility of de-stabilisation.
  • The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act of the Parliament of India to institutionalize financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.Inflation targeting is a monetary policy regime in which a central bank has an explicit target inflation rate for the medium term and announces this inflation target to the public.

2..Which among the following is not a micro-economic structural reform?

A. Delicensing of textile industry

B. Deregulation of cement price
C. Repealing FERA
D. Dereservation of telecom
  • Answer: C
  • Exp: Microeconomics is the study of individuals, households and firms’ behavior in decision making and allocation of resources.
  • It generally applies to markets of goods and services and deals with individual and economic issues.
  • The Foreign Exchange Regulation Act (FERA) 1973, imposed strict regulations on transactions involving foreign exchange and controlled the import and export of currency.
  • FERA was repealed by the government in 1999 and replaced by the Foreign Exchange Management Act (FEMA), which liberalized foreign exchange controls and removed many restrictions on foreign investment.
  • Repealing FERA is not sector sensitive and therefore it is a macro-economic policy reform. All others are targeting specific sectors and so micro economic.

3..Which among the following is not a reserved industry?

A. Nuclear power generation

B. Railway services
C. Atomic mineral value addition
D. Defence ordinance manufacturer

 

Answer: D
Exp: Defence ordnance or industrial explosives are in licensed category and not reserved category. It has been shifted since June 2015. Rest all are exclusively reserved for public sector reservation.


4..Which among the following is not a second generation reform?

A. Amendment of Apprentice Act

B. Insolvency and Bankruptcy Code
C. Real Estate Regulation Act
D. Interest Rate Deregulation
  • Answer: D
  • Exp: The term `second generation reform’ was coined by the IMF in the context of the perception by some that the globalisation of the world economy, while benefiting developing countries to a degree with an increase in trade and investment, would also create certain problems of a magnitude sufficient to result in their near or complete marginalisation.
  • The IMF intended that second generation reform would supplement basic reform structured on the achievement of balance of payments viability, reduction of government deficits, trade liberalisation and a reduction of the role of the state.
  • Second generation of economic reforms in India gave special stress on fiscal reforms, financial reforms, structural reforms, labour law reforms etc. Apprenticeship Act Reform is a part of Labour Law Reform.
  • IBC is an exit law reform and RERA is related to land distribution reform but interest rate deregulation was done with 1st generation reforms in 1997.

5..What is crowding out?

A. Decrease in private consumption due to rise in government expenditure
B. Decrease in private investment due to rise in government expenditure
C. Decrease in private expenditure due to inflation
D. None of the above
  • Answer: B
  • Exp: The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending.
  • Sometimes, government adopts an expansionary fiscal policy stance and increases its spending to boost the economic activity.
  • Usually this increase in government spending is funded using higher taxes or borrowing on part of the government.
  • When governments raise taxes in order to introduce or expand welfare programs, individuals and businesses are left with less discretionary income, which can reduce charitable contributions.
  • In this respect, public sector expenditures for social welfare can reduce private sector giving for social welfare, offsetting the government’s spending on those same causes.
  • Higher borrowings by the Government has the effect of absorbing the economy’s lending capacity by increasing interest rate and thus discouraging businesses from making capital investments.

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