Economics Mock Test - 5

The correct answer is the Prices of inputs into production of the good.

Key Points

• Demand of Goods
  • It is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service.
  • A demand curve is a graphic representation of the relationship between product price and the quantity of the product demanded.
  • Income is not the only factor that causes a shift in demand.
  • The other things that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations.
  • There is an inverse (negative) relationship between the price of a product and the amount of that product consumers are willing and able to buy.
  • Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand. 
  • A shift in the demand curve is when a determinant of demand other than price changes.
  • It occurs when demand for goods and services changes even though the price didn't.
  • A shift in the demand curve is an unusual circumstance when the opposite occurs.
  • The prices of complementary or substitute goods also shift the demand curve.
  • When the price of a good that complements good decreases, then the quantity demanded of one increases and the demand for the other increases.
  • The price remains the same but at least one of the other five determinants changes.
  • Those determinants are: 
    • ​Income of the buyer.
    • Consumer trends and tastes.
    • Expectations of future price, supply, needs, etc.
    • The price of related goods.
    • The number of potential buyers.
• Therefore, the prices of inputs into production does not affect the quantity of a product demanded by the consumer. Hence, Option 4 is correct.

The correct answer is option 4.

Key Points

• What is demand?
  • The quantity of a commodity that a consumer is willing to buy and is able to afford, given the prices of goods and income of the consumer, is called demand for that commodity.
  • Demand for a commodity x, apart from the price of x itself, depends on factors such as prices of other commodities, the income of the consumer and tastes and preferences of the consumers.
• A consumer usually decides his demand for a commodity on the basis of utility (or satisfaction) that he derives from it.
• What is utility?
  • The utility of a commodity is its want-satisfying capacity.
  • The more the need for a commodity or the stronger the desire to have it, the greater is the utility derived from the commodity.
  • The utility is subjective.
  • Different individuals can get different levels of utility from the same commodity.
    • For example, someone who likes chocolates will get much higher utility from chocolate than someone who is not so fond of chocolates, Also, a utility that one individual gets from the commodity can change with change in place and time.
      • For example, utility from the use of a room heater will depend upon whether the individual is in Ladakh or Chennai (place) or whether it is summer or winter (time).

The correct answer is option 2.

Important Points

• Exceptions to the Law of Demand
  • Giffen Goods
    • Giffen goods are a special category of inferior goods in which demand for a commodity falls with a fall in its price.
    • In the case of certain inferior goods when their prices fall, their demand may not rise because extra purchasing power (caused by a fall in prices) is diverted on the purchase of superior goods.
  • Goods expected to become scarce or costly in future
    • These goods are purchased by the household in increased quantities even when their prices are rising upwards.
    • This is due to the fear of a further rise in prices.
  • Goods of Ostentation
    • Status symbol goods are purchased not because of their intrinsic value but because of status or prestige value.
    • The same jewellery when sold at a lower price sells poorly but offered at two times the price, sells quite well.

Key Points

• An exceptional demand curve slopes upward to the right. It happens when the demand increases with the rise of price. This happens in the case of goods having prestige value, fear of shortage, change in income.

The correct answer is Less than zero.

Important Points

• Income elasticity of demand refers to the sensitivity of the quantity demanded a certain good to a change in real income of consumers who buy this good, keeping all other things constant.
• As income rises, the proportion of total consumer expenditures on necessity goods typically declines.
• Inferior goods have a negative income elasticity of demand; as consumers' income rises, they buy fewer inferior goods.
  • Example - Oil, which is much cheaper than butter.

Key Points

• Types of Income Elasticity of Demand 
  • ​High: A rise in income comes with bigger increases in the quantity demanded.
  • Unitary: The rise in income is proportionate to the increase in the quantity demanded. 
  • Low: A jump in income is less than proportionate to the increase in the quantity demanded. 
  • Zero: The quantity bought/demanded is the same even if income changes
  • Negative: An increase in income comes with a decrease in the quantity demanded. 

The correct answer is perfect competition.

Key Points

• Perfect competition describes a market structure where competition is at its greatest possible level.
  • A perfectly competitive market has the following defining features:
    • The market consists of a large number of buyers and sellers.
    • Each firm produces and sells a homogenous product. i.e., the product of one firm cannot be differentiated from the product of any other firm.
    • Entry into the market as well as exit from the market is free for firms.
    • Information is perfect.
• Oligopoly
  • ​An industry structure in which there are a few firms producing products that range from slightly differentiated to highly differentiated.
  • Each firm is large enough to influence the industry.
  • Barriers to entry exist.
• Monopolistic competition
  • A market structure in which there is a large number of firms. 
  • Each having a small portion of the market share and slightly differentiated products.
  • There are close substitutes for the product of any given firm, so competitors have slight control over price.
  • There are relatively insignificant barriers to entry or exit, and success invites new competitors into the industry.
• Imperfect competition
  •  A market structure in which companies sell different products and services. 
  • They set their own individual prices, fight for market share, and are often protected by barriers to entry and exit.

The correct answer is Option 3.

Key Points

National income

• National income is the total value of a country's final output of all new goods and services produced in one year. Understanding how national income is created is the starting point for macroeconomics.
• It is the total amount of goods and services produced within the nation during the given period say, 1 year. It is the total factor income i.e. wages, interest, rent, profit, received by factors of production i.e. labor, capital, land, and entrepreneurship of a nation.

1. As the level of households and firms increases, the output is also likely to increase. However, under certain circumstances, the price level may also be driven up.
2. The nominal value of national income, or any other aggregate, is the value of national output at the prices existing in the year that national income is measured – that is, at current prices. In simple terms, the ‘nominal' value of national income can be found by multiplying the quantity of output by the retail (market) price of this output.
3. If demand increases at an unsustainable rate, resources become increasingly scarce, and firms will raise prices. Similarly, wages are likely to rise as the labour market clears and unemployment falls. The more that workers are needed the higher the wage rate. This will act as an incentive for workers to enter this industry. The combined effect of higher wages and prices is that the nominal value of national output may be driven up, rather than its real value.
4. To find the real value of changes in output under inflationary conditions, the effects of any general price increase (price inflation) must be taken into account. This is done by holding prices constant from a starting measure, called the base year.

Therefore, an increase in national income because of an increase in prices only is called an increase in nominal national income.

The correct answer is Factor Cost.

Key Points

• National income is the total value of a country’s final output of all goods and services produced in a year.
• National income is also known as NNP at factor cost.
• It is sum total of incomes of residents of a country in a given period of time including capital consumption or depreciation.
• All payments that are made to factors of production like land, labour, capital and entrepreneurship are at factor cost at which goods and services are produced.

National income = NNP at factor cost​

Important Points

• Factor cost is basically the input costs (like raw material, interest on loans if taken, labourers' wages, etc) the producer or the manufacturer has to bear during the process of producing goods. Factor cost is also termed as ‘factory price’. So in a way, it can also be termed as the ‘price’ of the commodity from the producer’s side. 

Additional Information

According to Simon Kuznets, National Income can be calculated by three methods.

Product Method- 

• In this method, the net value of final goods and services produced in a country during a year is obtained, which is called the final product.

Income Method-

• In this method, a total of net income earned by working people in different sectors and commercial enterprises is obtained. By this method, NI is obtained by adding receipts as total rent, total wages, total interest, and total profit.

Consumption Method-

• It is also called the expenditure method.
• Income is either spent on consumption or saving. Hence, National Income is the addition of total consumption and total saving.
• The national income in India is calculated by the Central Statistical Organisation.
• The Central Statistics Office (CSO), an attached office of the ministry, coordinates the statistical activities in the country and evolves statistical standards.

The correct answer is nominal effective exchange rate.

Key Points

• The nominal effective exchange rate (NEER) is the unadjusted weighted average rate at which one country's currency trades for a basket of foreign currencies.
• The nominal exchange rate is the amount of local currency required to acquire foreign currency at the current exchange rate.
• The NEER is a measure of a country's international competitiveness in the foreign currency (forex) market.
• The NEER is also used as the trade-weighted currency index by forex dealers.
• It indicates whether a currency is weak or strong, or if it is weakening or strengthening in relation to international currencies.

The correct answer is A survey of the consumption in NSSO families.

Key Points

• Poverty Estimation in India:
  • Poverty estimation in India is carried out by NITI Aayog’s task force through the calculation of the poverty line based on the data captured by the National Sample Survey Office(NSSO) under the Ministry of Statistics and Programme Implementation (MOSPI).
  • Poverty line estimation in India is based on consumption expenditure and not on income levels.
  • Poverty is measured based on consumer expenditure surveys of the National Sample Survey Organisation.
  • A poor household is defined as one with an expenditure level below a specific poverty line.
  • The incidence of poverty is measured by the poverty ratio, which is the ratio of the number of poor to the total population expressed as a percentage.
  • It is also known as the head-count ratio.
• Measurement of Unemployment in India:
  • National Sample Survey Office (NSSO), an organization under the Ministry of Statistics and Programme Implementation (MoSPI) measure unemployment in India on following approaches:
  • Usual Status Approach:
  • This approach estimates only those persons as unemployed who had no gainful work for a major time during the 365 days preceding the date of the survey.
  • Weekly Status Approach:
  • This approach records only those persons as unemployed who did not have gainful work even for an hour on any day of the week preceding the date of the survey.
  • Daily Status Approach:
  • Under this approach, the unemployment status of a person is measured for each day in a reference week.
  • A person having no gainful work even for 1 hour in a day is described as unemployed for that day.

Additional Information

Poverty:

• Poverty is a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living.
• Poverty means that the income level from employment is so low that basic human needs can't be met.
• In India, 21.9% of the population lives below the national poverty line in 2011.
• In 2018, almost 8% of the world’s workers and their families lived on less than US$1.90 per person per day (international poverty line).
• Types of Poverty:
• There are two main classifications of poverty:
• Absolute Poverty:
  • A condition where household income is below a necessary level to maintain basic living standards (food, shelter, housing). This condition makes it possible to compare between different countries and also over time.
  • It was first introduced in 1990, the “dollar a day” poverty line measured absolute poverty by the standards of the world's poorest countries.
  • In October 2015, the World Bank reset it to $1.90 a day.
• Relative Poverty:
  • It is defined from the social perspective that is the living standard compared to the economic standards of the population living in surroundings. Hence it is a measure of income inequality.
  • Usually, relative poverty is measured as the percentage of the population with income less than some fixed proportion of median income.

Unemployment:

• Unemployment occurs when a person who is actively searching for employment is unable to find work.
• Unemployment is often used as a measure of the health of the economy.
• The most frequent measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labour force.
• National Sample Survey Organization (NSSO) defines employment and unemployment on the following activity statuses of an individual:
  • Working (engaged in economic activity) i.e. 'Employed'.
  • Seeking or available for work i.e. 'Unemployed'.
  • Neither seeking nor available for work.
• The first two constitutes the labour force and the unemployment rate is the per cent of the labour force that is without work.

Unemployment rate = (Unemployed Workers / Total labour force) × 100

The correct answer is Service Sector.

Key Points

• The services sector is the largest sector of India. Hence the correct answer is option 1.
• Gross Value Added (GVA) at current prices for the services sector is estimated at 96.54 lakh crore INR in 2020-21.
• The services sector accounts for 53.89% of total India's GVA of 179.15 lakh crore Indian rupees.
• The share of primary, secondary and tertiary (services) sectors have been estimated as 21.82 per cent, 24.29 per cent, and 53.89 per cent.

The correct answer is All final goods and services

Key Points

• Gross domestic product (GDP) is the monetary value of all finished goods and services made within a country during a specific period.
• GDP provides an economic snapshot of a country, used to estimate the size of an economy and growth rate.
• GDP can be calculated in three ways, using expenditures, production, or incomes.
• It can be adjusted for inflation and population to provide deeper insights.
• Though it has limitations, GDP is a key tool to guide policy-makers, investors, and businesses in strategic decision-making.

The correct answer is Gross National Product - Gross Domestic Product - Net Wealth Income from Abroad.

Key Points

• Gross National Product (GNP) - 
  • Gross national product (GNP) is an estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country's residents.
  • GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.
  • GNP ≡ Gross domestic product (GDP) + 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
  • Hence, GNP ≡ GDP + Net factor income from abroad

Additional Information

• Revenue Deficit: The revenue deficit refers to the excess of the government’s revenue expenditure over revenue receipts
  • Revenue deficit = Revenue expenditure – Revenue receipts
  • The revenue deficit includes only such transactions that affect the current income and expenditure of the government.
  • When the government incurs a revenue deficit, it implies that the government is dissaving and is using up the savings of the other sectors of the economy to finance a part of its consumption expenditure.
• Fiscal Deficit is the difference between the total income of the government (total taxes and non-debt capital receipts) and its total expenditure. While calculating the total revenue, borrowings are not included. Hence, 
  • Fiscal Deficit = Budget expenditure- Budget receipts excluding borrowings.
  • A fiscal deficit situation occurs when the government’s expenditure exceeds its income. This difference is calculated both in absolute terms and also as a percentage of the Gross Domestic Product (GDP) of the country. A recurring high fiscal deficit means that the government has been spending beyond its means.
• Net National Product (NNP) - 
  • Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period. It is the equivalent of the gross national product (GNP), the total value of a nation's annual output, minus the amount of GNP required to purchase new goods to maintain existing stock, otherwise known as depreciation.
  • Net National Product (NNP) = Gross National Product − Depreciation.​

The correct answer is Central Statistical Organization.

• In India, National Income is computed by Central Statistical Organization.

Key Points

• The Central Statistics Office is a governmental agency in India under the Ministry of Statistics and Programme Implementation.
• It is responsible for the coordination of statistical activities in India, and evolving and maintaining statistical standards.
• It has a well-equipped Graphical Unit.
• The CSO is located in Delhi.
  • Founded: 2 May 1951
  • Headquarters: New Delhi, India
  • Parent department: Ministry of Statistics and Programme Implementation

Important Points

• Function​
  • The main functions of C.S.O are to provide advisory services to other statistical agencies, keeping liaison (public relation) with international statistical bodies, preparing and publishing national accounts statistics, industrial statistics, conducting an economic census, and training statistical personal in the official.
• National income means the value of goods and services produced by a country during a financial year.
• National Income = C (household consumption) + G (government expenditure) + I (investment expense) + NX (net exports).

Additional Information

Organization	Establishment Year	Headquarters
Central Statistics Office	2 May 1951	New Delhi
Planning commission	15 March 1950	New Delhi
Reserve Bank of India	1 April 1935	Mumbai

The correct answer is Wage inflation.

Key Points

• Wage inflation is an increase in nominal wages which means workers receive higher pay.
• Wage inflation tends to cause price inflation and higher growth.
• The impact of wage inflation depends on whether it is a real increase (higher than inflation) or just nominal increase (same wage increase as inflation).

Additional Information

• Stagflation is characterized by slow economic growth and relatively high unemployment. It is caused by cost-push inflation.
• The core inflation rate measures rising prices in everything except food and energy.
  • The prime rate does not include food and energy prices because they vary greatly each month.
  • Headline inflation is the total inflation in an economy.
  • The headline inflation figure includes inflation in a basket of goods that includes items such as food and energy.
• Deflation is when consumer and asset prices decrease over time, and purchasing power increases.

The correct answer is Option 2.

Key Points

• Types of Unemployment in India
  • Seasonal Unemployment:
    • It is unemployment that occurs during certain seasons of the year.
    • People migrate to an urban area, pick up a job and stay there for some time, but come back to their home villages as soon as the rainy season begins.
    • This is because work in agriculture is seasonal, there are no employment opportunities in the village for all months of the year. Hence, Option 2 is correct.
    • Seasonal unemployment occurs at different points over the year because of seasonal patterns that impact the jobs.
    • This is applicable to employments that are based on seasonal changes and are operational only during a particular season in a year.
    • Some examples include fruit pickers and holiday-related jobs (tourism). 
    • Therefore, such sectors offer employment opportunities to the workforce involved in it only for a particular time period in a year.
    • People engaged in activities under these sectors may remain unemployed during the off-season.
    • Seasonal unemployment is common in the case of industries producing seasonal goods.
    • For instance in India during the festive season or the wedding season in India, unemployment rates fall as a result of the demand for labour that can help with all the arrangements required during the various rituals taking place.

Additional Information

• Disguised Unemployment:
  • It is a phenomenon wherein more people are employed than actually needed.
  • It is primarily traced in the agricultural and unorganized sectors of India.
• Structural Unemployment:
  • It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.
  • Many people in India do not get jobs due to a lack of requisite skills and due to poor education levels, it becomes difficult to train them.
• Cyclical Unemployment:
  • It is the result of the business cycle, where unemployment rises during recessions and declines with economic growth.
  • Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies.
• Technological Unemployment:
  • It is the loss of jobs due to changes in technology.
  • In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year-on-year.
• Frictional Unemployment:
  • Frictional Unemployment also called Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.
  • In other words, an employee requires time for searching for a new job or shifting from the existing to a new job, this inevitable time delay causes frictional unemployment. It is often considered voluntary unemployment because it is not caused due to the shortage of jobs, but in fact, the workers themselves quit their jobs in search of better opportunities.
• Vulnerable Employment:
  • This means, people, working informally, without proper job contracts, and thus sans any legal protection. These persons are deemed ‘unemployed’ since records of their work are never maintained.
  • It is one of the main types of unemployment in India 

 

The correct answer is WPI (Wholesale Price Index).

Key Points

• WPI (Wholesale Price Index) is used to measure headline inflation in India. 
  • It is the year-on-year percentage change in the wholesale price index (WPI), which is used as an indicator of headline inflation.

Additional Information

• A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households.
• Changes in measured CPI track changes in prices over time.
• The GDP deflator, also called implicit price deflator, is a measure of inflation.
  • It is the ratio of the value of goods and services an economy produces in a particular year at current prices to that of prices that prevailed during the base year.
• The industrial production index (IPI) measures levels of production and capacity in the manufacturing, mining, electric, and gas industries, relative to a base year. 

The correct answer is Stagflation.

• Stagflation is an economic scenario where a particular combination of low growth and rising inflation leads to high unemployment.

Key Points

• Stagflation:
  • The term was coined by lain Macleod, a Conservative Party MP in the United Kingdom, in November 1965.
  • Stagflation is a situation in which the inflation rate is high, the economic growth rate slows and unemployment remains steadily high.
  • With stalled economic growth, unemployment tends to rise and existing incomes do not rise fast enough, and yet, people have to contend with rising inflation.
  • So people find themselves pressurized from both sides as their purchasing power is reduced.

Additional Information

• Causes of looming stagflation situation in India:
  • Reduced consumption
  • Volatile Oil
  • Decreased credit availability
  • Unemployment
  • Inflation

The correct answer is Creditors.

Key Points

• In economics, inflation is defined as a gradual increase in the prices of goods and services in an economy.
• Inflation would have the most adverse effects on creditors.
• Debtors benefit while creditors lose during periods of rising prices.
• Deflation is the opposite of inflation, which is defined as a prolonged drop in the overall price level of goods and services.
• Maintaining the balance between inflation and deflation is essential as the economy can quickly swing from one condition to the other as a result of these two conditions.
• The inflation rate, which is the annualised percentage change in a general price index, is a typical metric of inflation.
• The majority of economists prefer a low and steady rate of inflation.
• By executing monetary policy, such as establishing interest rates in India, the Reserve Bank of India keeps an eye on price movements and manages deflation or inflation.

The correct answer is Consumer Price Index for the Rural Laborers.

Key Points

• The Consumer Price Index, or CPI as it is commonly known, is an index that measures retail inflation in the economy by collecting changes in the prices of the most commonly used goods and services by consumers.
• CPI, also known as a market basket, is determined for a set list of products such as food, housing, clothing, transportation, electronics, medical care, education, and so on.
• CPI RL at the base year 1986-87 for December 2021 is 1106.
• The Consumer Price Index for Agricultural Labourers (AL) and the Consumer Price Index for Rural Labourers (RL) are indexed for agricultural labour and rural labour households, respectively.

The correct answer is Technological Unemployment.

Key Points

• Types of Unemployment in India
  • Technological Unemployment:
    • It is the loss of jobs due to changes in technology.
    • Unemployment caused due to technical advancement and scientific development is known as Technological Unemployment. Hence, Option 1 is correct.
    • In 2016, World Bank data predicted that the proportion of jobs threatened by automation in India is 69% year-on-year.
    • It is a form of structural unemployment wherein the structure of the economy changes with the shifts in demand for manpower due to the introduction of new machinery, time-saving technology, and improved methods of production.
    • Typically, technological unemployment occurs with the introduction of new machinery, and it is said to be temporary or short-lived.
    • This is because with the use of improved technology the returns for the company increase in the long run and these can be employed to further diversify into other business lines or promote the allied industries.
    • Technological advancement does bring a change in manpower requirements, but it is a temporary phenomenon that ultimately increases the demand for manpower in the long run.

Additional Information

• Disguised Unemployment:
  • It is a phenomenon wherein more people are employed than needed.
  • It is primarily traced in the agricultural and unorganized sectors of India.
• Seasonal Unemployment:
  • It is unemployment that occurs during certain seasons of the year.
  • Agricultural laborers in India rarely have worked throughout the year.
• Structural Unemployment:
  • It is a category of unemployment arising from the mismatch between the jobs available in the market and the skills of the available workers in the market.
  • Many people in India do not get jobs due to a lack of requisite skills and due to poor education levels, it becomes difficult to train them.
• Cyclical Unemployment:
  • It is the result of the business cycle, where unemployment rises during recessions and declines with economic growth.
  • Cyclical unemployment figures in India are negligible. It is a phenomenon that is mostly found in capitalist economies.
• Educated unemployment
  • When educated people do not find jobs it is called educated unemployment.
• Frictional Unemployment:
  • Frictional Unemployment also called Search Unemployment, refers to the time lag between the jobs when an individual is searching for a new job or is switching between the jobs.
  • In other words, an employee requires time for searching for a new job or shifting from the existing to a new job, this inevitable time delay causes frictional unemployment. It is often considered voluntary unemployment because it is not caused due to the shortage of jobs, but in fact, the workers themselves quit their jobs in search of better opportunities.
• Vulnerable Employment:
  • This means, people, working informally, without proper job contracts, and thus sans any legal protection. These persons are deemed ‘unemployed’ since records of their work are never maintained.
  • It is one of the main types of unemployment in India.

​Structure of Employment: 

 

The correct answer is The Ministry of Commerce and Industry.

Key Points

• The Ministry of Commerce and Industry brings out the Wholesale Price (WPI) data in India.
• The Wholesale Price Index measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• It is published by the Office of Economic Advisor (Ministry of Commerce & Industry).
• The base year for WPI is 2011-12.
• It is effective from April 2017.
• It is unlike the Consumer Price Index (CPI), which tracks the prices of goods and services purchased by consumers.
• It captures the average movement of wholesale prices of goods and is primarily used as a GDP deflator.
• WPI(2011-12) reckons only basic prices and does not include taxes, rebate/trade discounts, transport and other charges.

​The correct answer is disinvestment.

Key Points

• Privatisation of the public sector enterprises by selling off part of the equity of PSEs to the public is known as disinvestment.
• Privatisation means the transfer of ownership, management, and control of the public sector enterprises to the private sector.
• Objectives of Privatisation:
  • Providing strong momentum for the inflow of FDI, 
  • Privatisation aims at providing a strong base for the inflow of FDI, The increased inflow of FDI improves the financial strength of the economy.
• Government companies are transformed into private companies in two ways:

1. By the withdrawal of the government from the ownership and management of public sector companies. and By the outright sale of public sector companies.
2. Privatisation of the public sector undertakings by selling off parts of the equity of PSUs to the private sector is known as disinvestment. The purpose of the sale is mainly to improve financial discipline and facilitate modernisation.

Additional Information

• Disinvesting is a strategy by which an investor offloads or disposes of an asset or a partial stake in the asset. Disinvesting is an exit strategy that means taking out an existing investment.
• Disinvestment policies are commonly followed by governments to allocate resources more efficiently.
• For example, the Indian government recently announced that they will carry out disinvestment in BPCL, a government oil and gas subsidiary.
• Some other examples of disinvestment are- INDIAN RAILWAY CATERING AND TOURISM CORPN. LTD., IRCON INTERNATIONAL LTD., GAIL (INDIA) LTD., TATA COMMUNICATIONS LTD., STEEL AUTHORITY OF INDIA LTD., etc.

The correct answer is 01 Apr to 31 Mar.

Key Points

• Indian Financial Year
  • In India, financial year starts from 1st April and ends on 31st March. Hence, Option 1 is correct.
  • This period in which the income is earned is known as the Financial Year or Fiscal Year.
  • The income tax returns are filed and taxes for a company are usually paid in the next year after the end of the Financial Year.
  • This next year in which the income is assessed to tax is called the Assessment Year.
  • So in case, the accounts are being prepared for the year starting 1st April 2013 and ending on 31st March 2014, this period would be called Financial Year 2013-14.
  • And this income would be assessed to tax in the next year and this period would be called Assessment Year 2014-15.
  • The due date for filing income tax returns for a financial year is 31st July/30th Sept of the Assessment Year.
  • Therefore if the income tax returns are being filed for the financial year 2013-14, the due date for filing the income tax returns would be 31st July 2014/30th Sept 2014 as the case may be.
  • In simple terms, Financial Year is the year in which the income is earned and the assessment year is the year in which the income is assessed to tax and all taxes are paid & tax returns filed.
  • The income tax rules and slab rates which are applied for the assessment year 2014-15 would be the same as the rules for the financial year 2013-14 and so on.
  • The financial year is usually denoted as F/Y and the assessment year is denoted as A/Y.
  • As the financial year is the year that is previous to the assessment year, the financial year is sometimes also called the Previous Year for Income Tax purposes.

The correct answer is Defence.

Key Points

• Among the options, defence expenditure is not included in the developmental expenditure. 
• The money spent by the government on developmental and welfare programmes is known as development expenditure.
• Developmental expenditures include expenditures on economic services, social and communist services, and grants to states.
• It helps in economic development by increasing the production and real income of the country.
• Developmental expenditure on revenue can be divided into two, developmental expenditure on revenue account and developmental expenditure on capital account.
• Social and community services, economic services and developmental assistance to states are included in it.
• Developmental expenditure has a definite objective to achieve during the plan period.
• The share of developmental expenditure is gradually decreasing.
• Expenditure on Railways, power, health, education, and Science and Technology are examples of Development expenditure.
• Non-Developmental Expenditure refers to expenditure of the government which does not directly help in the economic development of the country.

The correct answer is Interest Rate.

Key Points

• Interest Rate does not form part of the fiscal policy of a country.
•  Fiscal policy is the use of government revenue collection (mainly taxes but also non-tax revenues such as divestment, loans) and expenditure (spending) to influence the economy.
• The above objectives are met in the following ways:
  • Consumption Control – This way, the ratio of savings to income is raised.
  • Raising the rate of investment.
  • Taxation, infrastructure development.
  • Imposition of progressive taxes.
  • Exemption from the taxes provided to the vulnerable classes.
  • Heavy taxation on luxury goods.
  • Discouraging unearned income.
• Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives.

Additional Information 

• Fiscal deficit = Total expenditure – Total receipts excluding borrowings
  • This implies that fiscal policy is used to stabilize the economy over the course of the business cycle.
  • In India, Fiscal Policy is formulated by the Ministry of Finance.
  • Fiscal policy is playing an important role in the economic and social front of a country.
  • Traditionally, fiscal policy is concerned with the determination of state income and expenditure policy. ​

Confusion Points

• Reserve Bank of India, Monetary Policy Committee(MPC) decides the key interest rates in India like repo rate, reverse repo rate, etc.

The correct answer is the USA.

Key Points

• Trade surplus refers to a situation when the value of exports is greater than imports.
• Trade deficit refers to a situation when the amount of imports exceeds exports.
• India's overall trade deficit, including both goods and services, has increased to USD 103.63 billion in 2018-19 from USD 84.45 billion in 2017-18.
• Since 2014-2015 India has consistently run a trade surplus with the USA and UAE.
• India has a trade deficit continuously since 2014-15 concerning other major trading partners i.e. China, Saudi Arabia, Iraq, Germany, Korea RP, Indonesia, and Switzerland.  

Additional Information

Country	Currency	Capital	President/Prime Minister/Chancellor
China	Renminbi	Beijing	Xi Jinping
Germany	Euro	Berlin	Angela Merkel
Saudi Arabia	Saudi Riyal	Riyadh	Mohammad Bin Salman

The correct answer is Balance of Payment.

Key Points

• Balance of Payment (BOP) of a country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year.
• The balance of payments includes both the current account and capital account.
• The current account includes a nation's net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.
• The capital account consists of a nation's transactions in financial instruments and central bank reserves.
• The balance of payments (BOP) summarizes all transactions that a country's individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country. 
• These transactions consist of imports and exports of goods, services, and capital, as well as transfer payments, such as foreign aid and remittances.

Additional Information

• A letter of credit is the most well-known method of payment in foreign/international trade.
• Under an import letter of credit, the importer's bank guarantees to the supplier that the bank will pay mentioned amount in the agreement, once the supplier or exporter meets the terms and conditions of the letter of credit.
• This method of payment plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves.

Important Points

• Letters of Credit are issued subject to the Uniforms Customs & Practice for Documentary Credits (UCPDC) (UCP). This set of rules is produced by the International Chamber of Commerce and Industries (CII).
• Merits of import include the Introduction of new products to the market. Many businesses in India and China tend to produce goods for the European and American markets and reducing costs. Another major benefit of importing is reducing manufacturing costs.
• Merits of export access to more consumers and businesses, diversifying market opportunities, and expanding the lifecycle of mature products.

The correct answer is FDI.

• FDI(Foreign Direct Investment) is not a component of Current account.
• Current account composed of 
  • Exports
  • Imports
  • Trade Balance
  • Invisibles(Services, Transfer, Income)
• ​Capital Account composed of 
  • ​External assistance 
  • External Commercial Borrowings
  • Banking Capital of the non-resident 
  • Foreign Direct Investment
  • Foreign Portfolio Investment

Additional Information

• Both the capital account and current account is the part Balance of payment.
• Balance of Payment is the systematic record of all its economic transactions(both government and private transactions) with the outside world in a given year.

The correct answer is Export.

• Special Economic Zone (SEZ) policy was announced in the year 2000 and got the parliamentary approval by SEZ act 2005.
• SEZs mainly aim to develop exports hubs in the country in order to promote growth and development.
• SEZs can be set up by both Government of Indian as well as by the private sector in all the domain of agriculture, industry and services.

Objectives of SEZs

• Generation of additional economic activity
• promotion of exports of goods and services
• promotion of investment from domestic and foreign sources
• creation of employment opportunities 
• development of infrastructure facilities 

The correct answer is All of the above.

• Balance of Payment(BoP) of a country is a systematic record of all its economic transaction with the outside world in a given year.
• Balance of Payments composed of the 
  • Current Account
  • Capital Account
  • Errors and Omissions
• ​Capital Account: It is composed of external lending and borrowing, foreign currency deposits of banks, external bonds issued by the Government of India, FDI, FII.
• Current Account: It maintains records of export-import, interest payments, private remittances and transfers.
• Errors and Omissions: The difference between debit and credit entries of all transactions.

The correct answer is International Monetary Fund.

• The International Monetary Fund(IMF) helps its member countries in the time of Balance of Payment(BoP) Crisis.
• BoP crisis, also known as the currency crisis, occurs when a nation is unable to pay for essential imports or service its external debt repayments.
• Balance of Payment records all the transactions with other countries both of Government or Private Sector.
• Balance of Payments mainly composed of two accounts the current account and capital account.

About Internation Monetary Fund

• IMF is an international economic organisation founded in 1945 and headquartered in the USA.
• IMF principal function is to advice member countries to maintain strict financial discipline to avoid economic crisis.
• IMF helps member countries in the time of currency crisis and other difficult situations with its measures like Special Drawing Rights, Extended Fund Facility, and Reserve Tranche.
• IMF has 190 member countries and its Managing Director is Kristalina Georgieva.

The correct answer is 4) ​73.4%.

As per the SECC 2011 :

• Number of households in India - 24.4 crore
  • 17.9 crore (73.41%) are Rural
  • 6.5 crore (26.6%) are Urban
• 1 in 3 rural households is landless (own no agricultural land)
• 90% households don not have salaried jobs
• Rural poverty level - 25.7%
• Percentage of transgender population - 0.1%
• Number of households with atleast 1 graduate - 3.4%
• State with highest number of graduates - Delhi

The correct answer is Sub Divisional Officer (SDO).

• Sub Divisional Officer (SDO) responsibility is to get the survey of those living below the Poverty line. Hence, Option 3 is correct.

Key Points

• Poverty Estimation
  • A common method used to estimate poverty in India is based on the income or consumption levels and if the income or consumption falls below a given minimum level, then the household is said to be Below the Poverty Line (BPL).
  • Poverty Line Calculation: Poverty estimation in India is now carried out by NITI Aayog’s task force through the calculation of the poverty line based on the data captured by the National Sample Survey Office under the Ministry of Statistics and Programme Implementation (MOSPI).
  • NITI Aayog as a policy think tank has replaced Planning Commission, which was earlier responsible for calculating the poverty line in India. 

The correct answer is the deprivation index.

Key Points

• Absolute Poverty means when a household is not able to meet the needs of basic necessities of life.
• It is when a person or a household is below the poverty line and not able to meet basic necessities like shelter, food etc.
• The World Bank uses absolute poverty as the default definition of poverty.

 Thus, we can say that the Deprivation Index is not related to absolute poverty.

Confusion Points

•  The deprivation index is related to relative poverty which means individuals are poor in comparison to other members of the society.

​The correct answer is Poverty.

Key Points

• A cause for the Migration of unskilled workers in poverty.
• The unskilled workers migrate searching for ways to provide for their families and to escape unemployment, war, or poverty in their countries of origin.
• The Indian Census (2011) data calculated the total number of internal migrants accounting for inter and intra-state movement to be 450 million, an increase of 45% since the Census 2001 (De, 2019).
• Uttar Pradesh (UP), Bihar, Madhya Pradesh (MP), Rajasthan are among the major origin states of migration in India.
• Delhi, Kerala, Maharashtra, Gujarat, and Tamil Nadu are among the important destination states for these migrant workers.

Additional Information

• International Labour Organization brings together governments, employers and workers of 187 member States, to set labour standards, develop policies and devise programmes promoting decent work for all women and men.
• ILO was established in 1919 by the Treaty of Versailles as an affiliated agency of the League of Nations.
• Its headquarters are in Geneva, Switzerland.
• The President/ Director-General of ILO as of October 2021 is ‎Mr Guy Ryder.

The correct answer is ​Odisha.

Key Points

• The proportion of poor in India during 1973-2012 has come down from 55 to 22 percent.
• Six states - Tamil Nadu, Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal, and Orissa - contained a large section of poor in 1973-74.
• During 1973-2012, many Indian states reduced the poverty levels to a considerable extent.
• Since 1973, many Indian states have made significant efforts to reduce the level of poverty and have had success in it.
• Yet the level of poverty in the four states - Orissa, Madhya Pradesh, Bihar, and Uttar Pradesh, is above the national poverty level. Hence, Option 2 is correct.
• Andhra Pradesh, Rajasthan, West Bengal, and Tamil Nadu reduced the poverty level much better than other states.
• During 1973-74, about half the population in most of these large states was living below the poverty line.
• In 1999-2000, only two states - Bihar and Orissa - were left near that same level.
• Though they also reduced their share of poor, compared to other states, their success is marginal.

The correct answer is Targeted.

• The Public Distribution System, which evolved as a system of management of food and distribution of food grains, was relaunched as Targeted Public Distribution System in 1997.

​Key Points

• The public distribution system (PDS) is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution.
• PDS was introduced around World War II as a war-time rationing measure.
• Before the 1960s, distribution through PDS was generally dependant on imports of food grains.
• It was expanded in the 1960s as a response to the food shortages of the time; subsequently, the government set up the Agriculture Prices Commission and the FCI to improve domestic procurement and storage of food grains for PDS.
• By the 1970s, PDS had evolved into a universal scheme for the distribution of subsidized food Till 1992, PDS was a general entitlement scheme for all consumers without any specific target.
• The Revamped Public Distribution System (RPDS) was launched in June 1992 with a view to strengthen and streamline the PDS as well as to improve its reach in the far-flung, hilly, remote, and inaccessible areas where a substantial section of the underprivileged classes lives.
• In June 1997, the Government of India launched the Targeted Public Distribution System (TPDS) with a focus on the poor.
• Under TPDS, beneficiaries were divided into two categories:
  • Households below the poverty line or BPL
  • Households above the poverty line or APL.

Poverty refers to the state where people are not able to meet their basic needs.

Important Points

Land reform is a broad term.

• It refers to an institutional measure directed towards altering the existing pattern of ownership, tenancy and management of land.
• In West Bengal, the land reform measures helped to reduce poverty.
• According to the census of 2011, West Bengal's poverty ratio was 19.9.

 

Thus, we can conclude that West Bengal has the land reform measures that helped to reduce poverty.

Additional Information

• In Tamil Nadu, the public distribution of food helped in reducing poverty.
• Kerala aimed at human resource development to eradicate poverty.
• Punjab's poverty reduced due to an increase in agricultural growth.

Survey

• A survey is a research method used for collecting data from a predefined group of respondents to gain information and insights into various topics of interest. The process involves asking people for information through a questionnaire, which can be either online or offline.
• An Economic Survey is a snapshot of the major economic developments that have taken place in the last year and gives a glimpse of what is to come ahead in the short to medium term. It essentially lays the groundwork for the presentation of the Budget.

• NSSO ( National Sample Survey Organisation ) is responsible for conducting sample surveys for estimation of the poverty line.
• National Sample Survey Organisation is NSSO. It is a government organization under the Ministry of Statistics and Programme Implementation.
• The functions of NSSO are to conduct large-scale sample surveys on subjects like household consumer expenditure, employment and unemployment, health and medical services, etc.

Therefore Option 2 is the correct answer.

The correct answer is Jawaharlal Nehru Port.

Key Points

•  Jawaharlal Nehru Port (JNP)
  • This Port was established in 1969
  • It is located in Maharashtra.
  • The other name of the port is Nhava Sheva Port.
  • It is amongst the 13 major ports of India.

Important Point

Name	State/UT
Kandala	Gujarat
Mumbai	Maharashtra
Jawaharlal Nehru Port	Maharashtra
Marmagoa	Goa
New Mangaluru	Karnataka
Kochi	Kerala
New Tuticorin	Tamil Nadu
Chennai	Tamil Nadu
Ennore	Tamil Nadu
Vishakhapatanam	Andhra Pradesh
Paradip	Odisha
Kolkata	West Bengal
Port Blair	Andaman and Nicobar

The correct answer is Higher Education​.

Key Points

Rashtriya Uchchatar Shiksha Abhiyan

• RUSA is the centrally sponsored scheme launched in October 2013 that aims at providing strategic funding to higher education institutions throughout the country.
• The scheme is being operated in mission mode for funding state universities and colleges to achieve the aims of equity, access, and excellence.
• Funding is provided by the central ministry through the State governments and Union Territories (UTs), which in coordination with the Central Project Appraisal Board monitors the academic, administrative, and financial advancements taken under the scheme.
• Since 2016-17, the government has spent an average of Rs 1,500 crore every year on RUSA.

Additional Information

Objectives

• Improve the overall quality of state institutions by conforming to the prescribed norms and standards.
• Adoption of accreditation (certification of competency) as a mandatory quality assurance framework.
• Promoting autonomy in state universities and improving governance in institutions.
• Ensure reforms in the affiliation, academic and examination system.
• Ensure adequate availability of quality faculty in all higher educational institutions and ensure capacity building at all levels of employment.
• Create an enabling atmosphere for research in the higher education system.
• Correct regional imbalances in access to higher education by setting up institutions in unserved and underserved areas.
• Improve equity in higher education by providing adequate opportunities to the disadvantaged. 

Fundamental Rights and Education: Fundamental Rights of citizens given in our Constitution have established the spirit of equality and have helped to preserve individual liberty. The following articles in the category of Fundamental Rights have a special bearing on education in India.

• ARTICLE 21A - It grants the Right to Free and Compulsory Education to all the children aged six to fourteen years in a manner as the State may, by law determine. Inserted by the 86th Amendment in December 2002, this Article has accorded education the status of right for ensuring quality in educational expansion at the elementary level. 

Other Articles:

• ARTICLE 45: Directive Principles of the State Policy in Article 45 under Part IV of the Constitution states that “the State shall endeavor to provide, within a period of ten years from the commencement of this Constitution, for free and compulsory education for all children until they complete the age of fourteen years”.
• ARTICLE l5 - This Article guarantees prohibition of discrimination on grounds of religion, race, caste, sex, or place of birth by the State. It also ensures equality in educational opportunities in India.
• Insertion of Article 21A, making elementary education a fundamental right of all children between the age group of 6-14 years, Article 45 has been amended so as to restrict its scope to pre-primary education up to 6 years of age.

Hence, we conclude that the right to free and compulsory education at the primary education level is ensured by our Constitution under Article 21 A of 2002-Act.

The Congress government at the centre with P.V Narashima Rao as the Prime minister and Manmohan Singh as the Finance minister brought about the LPG Economic reforms in 1991 amid the B.O.P crisis.

• LPG stands for liberalization, privatization and globalization.
• This included a change in the policy outlook of the government to deal with the Balance of payment crisis.

The correct answer is 1991-2000.

• It was in the year 2000-01, that the government announced the reforms of the second generation, the ones which had been initiated by the then in 1991-2000 were called as 1st generation reforms. Important steps taken during these reforms were-
  • Promotions to the private sector
  • To make the Public sector undertaking more profitable and efficient.
  • Reforms for the banking sector, Insurance, etc.
  • Tax reforms

• The second generation of reforms was launched in the year 2000-01 when the reforms launched in the 1990s were not taking place as per the desired level of improvement. The major components covered in these reforms are-

  • Factor Market reforms related to petroleum, sugar, fertilizers, drugs, etc. in which dismantling of Administered Price Mechanism(APM) took place which means the regulation of the price of various products by the government.
    • Petroleum, Sugar, Fertilizers, Drugs, etc. were totally under the APM before the second generation reforms, now in petroleum only kerosene, LPG was under the APM, while petrol, diesel, and lubricants phased out from the APM
  • Public sector reforms related to the leverage to the capital market, international tie-ups, and green filed ventures. 
  • Legal sector reforms - These reforms were started in the first generation itself, but it was implemented and newer things were added in these like reforms in the Indian Penal code, Labour laws, company laws and enable suitably legal provisions like cyber laws, etc.
  • Reforms in Critical areas like in the infrastructure sector, education, healthcare sector, agricultural sector, etc.
  • State's role in the reforms - For the very first time state's role was defined in the process of economic reforms, all new steps of the reforms were started by the state with the centre playing a supportive role in it.
  • Social sector - The social sector especially in healthcare and the education sector gets special attention in the second generation of reforms with the increase in the allocations as well as centre showing greater performance to the development programmes in the health and education sector.
• The third generation of reforms was made on the launching of the tenth plan(2002-07). This generation of reforms was introduced to the cause of the fully functional Panchayati Raj Institutions (PRIs) so that the economic reforms can reach the grass-root level.
  • This generation of reforms was fully focussed on the world-class infrastructure and nurturing the spirit of entrepreneurship in India.

The correct answer is option 1 i.e, Department of Economic affairs.

Key Points

The Budget Division of the Department of Economic Affairs in the Ministry of Finance responsible for producing the Union Budget

The fact regarding Union Budget

• Article 112: Refers to the budget as an "Annual financial statement"
• The first independent budget of India was presented by RK Shanmukhan Chetty on November 26, 1947
• Merger of Railway Budget with Union budget since 2017 after 93 years

Department of Expenditure

• The Department of Expenditure is the nodal Department for overseeing the public financial management system in the Central Government and matters connected with state finances.

Department of Revenue

• The Department of Revenue functions under the overall direction and control of the Secretary (Revenue).
• It exercises control in respect of matters relating to all the Direct and Indirect Union Taxes through two statutory Boards namely, the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC).
• Each Board is headed by a Chairman who is also ex-officio Special Secretary to the Government of India.
• Matters relating to the levy and collection of all Direct taxes are looked after by the CBDT whereas those relating to levy and collection of Customs and Central Excise duties and other Indirect Taxes fall within the purview of the CBIC.
• The two Boards were constituted under the Central Board of Revenue Act, 1963. At present, the CBDT has six Members and the CBIC has six Members. The Members are also ex-officio Special Secretaries to the Government of India.

Department of Financial Services

• The Department of Financial Services (DFS) oversees several key programs/initiatives and reforms of the Government concerning the Banking Sector, the Insurance Sector, and the Pension Sector in India. Initiatives and reforms relating to Financial Inclusion, Social Security, and Insurance as a Risk Transfer mechanism.

​Department of Investment and Public Asset Management

• DIPAM is the nodal agency of the Union Finance Ministry mandated to advise the Union Government in the matters of financial restructuring of PSUs and also for attracting investment through capital markets.

Department of Economic Affairs

• It is the nodal agency of the Union government to formulate and monitor the country's economic policies and programs.
• Preparation & presentation of the Union Budget to the Parliament and budget for the state governments under President's Rule and union territory administrations.

The correct answer is State Government.

Key Points

• Implementation of land reforms:
  • It is a state subject, so it is the responsibility of the state governments to make more favorable arrangements for land relations.
  • Only state (provincial) legislatures have the power to enact and implement land-reform laws.
  • However, the central government played a significant advisory and financial role in land policy based on its constitutional role in social and economic planning (a role held concurrently with the states).
  •  As far as the influence of the central government is concerned, land reforms can be given more importance in giving central assistance to the state governments under the "Gadgil formula".

Additional Information

• Panchayati Raj Institutions:
  • Panchayati Raj is the system of local self-government of villages in rural India as opposed to urban and suburban municipalities.
  • It consists of the Panchayati Raj Institutions (PRIs) through which the self-government of villages is realized.
  • They are tasked with "economic development, strengthening social justice and implementation of Central and State Government Schemes including those 29 subjects listed in the 11th Schedule."
  • ​Part IX of the Indian Constitution is the section of the Constitution relating to the Panchayats.
  • It stipulates that in states or Union Territories with more than two million inhabitants there are three levels of PRIs:
    • Zilla Parishad at the District Level
    • Panchayat Samiti at the Block Level
    • Gram/Village Panchayat at the Village Level

Consumer durables market is a low volume but high unit value market.

Consumer durables market

• Consumer durables refer to those consumer goods that do not quickly wear out and yields utility over a long period of time
• The consumer durable industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, air conditioners, and washing machines.

​
​

• A soft market is a market that has more potential sellers than buyers. This is often referred to as a buyer's market, as the purchasers hold much of the power in negotiations.
• Fast-moving consumer goods, also known as consumer packaged goods, are products that are sold quickly and at a relatively low cost. Examples include non-durable household goods such as packaged foods, beverages, toiletries, candies, cosmetics, over-the-counter drugs, dry goods, and other consumables.
• Services Market: Market dealing in intangible products. Example: Teaching, childcare, etc.

The correct answer is None of the above.

Key Points

• The FRBM Bill was introduced by the then finance minister, Yashwant Sinha, in 2000.
  • The Bill, approved by the Union Cabinet in 2003, became effective from July 5, 2004.
• The FRBM Act aims to introduce transparency in India's fiscal management systems. Hence statement 1 is correct.
  • The Act’s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India. Hence statements 2 & 3 are correct.
  • The FRBM Act was enacted to introduce a more equitable distribution of India's debt over the years.
• ​The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:
  • Medium Term Fiscal Policy Statement
  • Macroeconomic Framework Statement
  • Fiscal Policy Strategy Statement
• The FRBM Act proposed that revenue deficit, fiscal deficit, tax revenue and the total outstanding liabilities be projected as a percentage of gross domestic product (GDP) in the medium-term fiscal policy statement. 
• Initial targets
  • The revenue deficit should be completely eliminated by March 31, 2009.
    • The minimum annual reduction target was 0.5% of GDP.
  • The fiscal deficit should be reduced to 3% of GDP by March 31, 2009.
    • The minimum annual reduction target was 0.3% of GDP.
  • The Central Government shall not give incremental guarantees aggregating an amount exceeding 0.5 per cent of GDP in any financial year beginning 2004-05.
  • Additional liabilities (including external debt at the current exchange rate) should be reduced to 9% of the GDP by 2004-05.
    • The minimum annual reduction target in each subsequent year is to be 1% of GDP.
  • RBI purchase of government bonds to cease from 1 April 2006.
    • This indicates the government does not borrow directly from the RBI.
• Current Targets
  • The government is to limit the fiscal deficit to 3% of the GDP by March 31, 2021, and the debt of the central government to 40% of the GDP by 2024-25, among others.

• Both the statements are correct with reference to tax impact on inelasticity of supply and demand.
• A tax will shift forward to consumers if the demand is inelastic relative to supply and tax will shift backward to producers if the supply is relatively more inelastic than demand.