Question 1

Which of the following best describes Fiscal Deficit in the context of Union Budget?

Accepted Answer

Fiscal deficit is the difference between total government expenditure and total government revenue (excluding borrowings). It represents the amount the government needs to borrow to meet its expenditure. In India's budget terminology, it is a key indicator of the government's financial health and is monitored closely by both economists and the RBI.

Question 2

Which of the following correctly describes the relationship between Repo Rate and Reverse Repo Rate as per RBI's monetary policy framework?

Accepted Answer

The Repo Rate is the rate at which the RBI lends money to commercial banks against government securities, while the Reverse Repo Rate is the rate at which the RBI borrows money from commercial banks. The Reverse Repo Rate is always lower than the Repo Rate, forming a corridor. As of 2024, the Repo Rate stands at 6.50% and the Reverse Repo Rate at 6.25%. Therefore, answer is B.

Question 3

The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme was launched in which year, and what is the annual income support provided to eligible farmers?

Accepted Answer

The PM-KISAN scheme was launched on 24 February 2019 by the Ministry of Agriculture & Farmers Welfare. It provides direct income support of ₹6,000 per year to eligible small and marginal farmers, disbursed in three equal installments of ₹2,000 each. Therefore, answer is C.

Question 4

In the context of India's fiscal policy, which of the following correctly defines Fiscal Deficit?

Accepted Answer

Fiscal Deficit is the difference between the government's total expenditure and its total revenue (both tax and non-tax revenue). It represents the amount by which government spending exceeds its income. When the government spends more than it earns, it must borrow to finance the deficit. Therefore, answer is B.

Question 5

The Cash Reserve Ratio (CRR) is a monetary policy tool used by the RBI. Which statement correctly describes its function and current status?

Accepted Answer

The Cash Reserve Ratio is the percentage of deposits that commercial banks must maintain as cash reserves with the RBI and cannot be used for lending. By changing the CRR, the RBI can control the money supply in the economy. As of 2024, the CRR stands at 4.50%. Therefore, answer is A.

Question 6

Which ministry is responsible for implementing the Pradhan Mantri Mudra Yojana (PMMY), and what is its primary objective?

Accepted Answer

The Pradhan Mantri Mudra Yojana was launched on 8 April 2015 by the Ministry of Micro, Small and Medium Enterprises (MSME). Its primary objective is to provide collateral-free loans to micro and small enterprises and entrepreneurs to support self-employment and business creation. Therefore, answer is D.

Question 7

As per the Monetary Policy Framework adopted by the RBI, the policy repo rate is the rate at which the RBI lends to commercial banks. Which of the following correctly describes the relationship between repo rate and reverse repo rate?

Accepted Answer

The repo rate is the rate at which the RBI lends money to commercial banks against government securities as collateral. The reverse repo rate is the rate at which the RBI borrows money from commercial banks. By definition, the reverse repo rate is always lower than the repo rate. This corridor (repo rate - reverse repo rate) is typically 50 basis points. Therefore, the answer is B.

Question 8

The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme was launched to provide direct income support to farmers. In which year was this scheme launched and which ministry oversees its implementation?

Accepted Answer

The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme was launched in February 2019. The scheme is overseen by the Ministry of Agriculture & Farmers Welfare. Under this scheme, eligible farmers receive ₹6,000 per year in three equal installments of ₹2,000 each. Therefore, the answer is C.

Question 9

Fiscal deficit occurs when a government's expenditure exceeds its revenue. Which of the following correctly defines the relationship between fiscal deficit and revenue deficit?

Accepted Answer

Fiscal deficit is the difference between total government expenditure and total government revenue (including both tax and non-tax revenue). Revenue deficit is the difference between revenue expenditure and revenue receipts, excluding capital transactions. By definition, fiscal deficit is always greater than or equal to revenue deficit because fiscal deficit includes both revenue and capital expenditures, while revenue deficit only accounts for revenue expenditures. Therefore, the answer is B.

Question 10

The Pradhan Mantri Mudra Yojana (PMMY) is a scheme to provide loans to micro and small enterprises. Which of the following correctly identifies the loan categories under this scheme?

Accepted Answer

The Pradhan Mantri Mudra Yojana (PMMY), launched in April 2015, provides loans to micro and small enterprises under three categories: Shishu (up to ₹50,000), Kishore (₹50,001 to ₹5 lakhs), and Tarun (₹5 lakhs to ₹10 lakhs). These loans are provided without collateral or third-party guarantees. Therefore, the answer is D.

Question 11

The Cash Reserve Ratio (CRR) is a monetary policy tool used by the RBI to regulate liquidity in the banking system. Which of the following correctly describes the effect of an increase in CRR on money supply?

Accepted Answer

The Cash Reserve Ratio (CRR) is the percentage of deposits that commercial banks must maintain as reserves with the RBI and cannot lend out. When the RBI increases the CRR, banks are required to hold more cash reserves, leaving them with less money to lend to the public. This reduces the money supply in the economy. Conversely, a decrease in CRR increases the money available for lending and increases money supply. Therefore, the answer is A.

Question 12

The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme provides direct income support to eligible farmers. Under this scheme, what is the total annual cash transfer per beneficiary farmer, and in how many installments is it provided?

Accepted Answer

The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme was launched on December 1, 2018, by the Ministry of Agriculture & Farmers Welfare. Under this scheme, eligible farmers receive a total of ₹6,000 per year in direct cash transfers, provided in three equal installments of ₹2,000 each. These installments are typically transferred directly to the bank accounts of beneficiary farmers at intervals of four months. The scheme aims to supplement the income of small and marginal farmers and has been expanded to cover all farmers regardless of land holding size.

Question 13

As per the Monetary Policy Framework adopted by the RBI in 2016, what is the primary objective of monetary policy in India?

Accepted Answer

The RBI adopted the Monetary Policy Framework in 2016, which mandates that the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. The framework established an inflation target of 4% (with a tolerance band of ±2%) to be achieved by the RBI. This replaced the earlier multiple-objective approach and aligned India's monetary policy with global best practices. Option A is correct because price stability is explicitly stated as the primary objective in the framework document.

Question 14

Under the Liquidity Adjustment Facility (LAF), the RBI conducts open market operations through repo and reverse repo auctions. What is the relationship between the repo rate and reverse repo rate?

Accepted Answer

The repo rate is the rate at which the RBI lends money to commercial banks against government securities as collateral, while the reverse repo rate is the rate at which the RBI borrows money from commercial banks. By definition, the reverse repo rate is always lower than the repo rate. This corridor (repo-reverse repo spread) is typically 50 basis points. The reverse repo rate acts as a floor for short-term interest rates, while the repo rate acts as a ceiling. This is a fundamental principle of the LAF system established by the RBI.

Question 15

The PM-KISAN Samman Nidhi scheme provides income support to farmers. Under which ministry is this scheme implemented, and what is the annual income support per farmer?

Accepted Answer

The PM-KISAN Samman Nidhi scheme was launched on February 24, 2019, and is implemented under the Ministry of Agriculture & Farmers Welfare. The scheme provides direct income support of ₹6,000 per year to eligible farmers, paid in three equal installments of ₹2,000 each. The scheme covers all landholding farmers, irrespective of the size of their landholding. As of 2024, the scheme has been extended to all farmers, including those with landholdings above 2 hectares (the initial limit was removed). The annual support amount of ₹6,000 remains constant.

Question 16

In the context of fiscal policy, what is the difference between Revenue Deficit and Fiscal Deficit?

Accepted Answer

Revenue Deficit is the excess of revenue expenditure over revenue receipts. It indicates that the government is spending more than it earns from regular sources (taxes, non-tax revenue) and must borrow to finance this gap. Fiscal Deficit is the excess of total expenditure (both revenue and capital) over total receipts (both revenue and capital). In other words, Fiscal Deficit = Revenue Deficit + (Capital Expenditure - Capital Receipts). A key distinction is that Revenue Deficit does not account for capital expenditure or capital receipts, while Fiscal Deficit encompasses the entire budget. Revenue Deficit is considered more serious because it indicates that even regular government operations are not self-financing, whereas Fiscal Deficit may include productive capital expenditure.

Question 17

The Pradhan Mantri Mudra Yojana (PMMY) was launched to provide collateral-free loans to micro and small enterprises. In which year was this scheme launched, and what is the maximum loan amount under the 'Shishu' category?

Accepted Answer

The Pradhan Mantri Mudra Yojana (PMMY) was launched on April 8, 2015, by Prime Minister Narendra Modi. The scheme aims to provide collateral-free loans to micro and small enterprises. The scheme has three categories based on loan amount: (1) Shishu: up to ₹50,000, (2) Kishore: ₹50,001 to ₹5,00,000, and (3) Tarun: ₹5,00,001 to ₹10,00,000. The 'Shishu' category is designed for the smallest enterprises and provides loans up to ₹50,000. This scheme is implemented through banks, MFIs, and NBFCs.

Question 18

In the context of India's fiscal policy, what is the distinction between Revenue Deficit and Fiscal Deficit?

Accepted Answer

Revenue Deficit is the excess of revenue expenditure over revenue receipts. It indicates that the government's current spending (on salaries, interest, subsidies, etc.) exceeds its current income (taxes, non-tax revenue). Fiscal Deficit, on the other hand, is the excess of total expenditure (both revenue and capital) over total receipts (revenue and capital receipts). In other words, Fiscal Deficit = Revenue Deficit + (Capital Expenditure - Capital Receipts). A Revenue Deficit is more concerning because it indicates the government is borrowing even for current consumption, whereas some fiscal deficit is acceptable if it finances productive capital expenditure. Revenue Deficit is a subset of Fiscal Deficit and is always smaller in magnitude.

Question 19

The Pradhan Mantri Mudra Yojana (PMMY) was launched to provide collateral-free loans to micro and small enterprises. Under this scheme, what is the maximum loan amount that can be provided under the 'Shishu' category?

Accepted Answer

The Pradhan Mantri Mudra Yojana (PMMY) was launched on April 8, 2015, by the Ministry of Finance to provide collateral-free loans to micro and small enterprises. The scheme has three categories based on loan amount: Shishu (up to ₹50,000), Kishore (₹50,001 to ₹5,00,000), and Tarun (₹5,00,001 to ₹10,00,000). The Shishu category is designed for the smallest enterprises and startups, with a maximum loan limit of ₹50,000. These loans are provided by banks, NBFCs, and MFIs without requiring collateral or third-party guarantees.

Question 20

As per the Monetary Policy Framework Agreement between the RBI and the Government of India, what is the inflation target range that the RBI is mandated to achieve?

Accepted Answer

The Monetary Policy Framework Agreement, formally adopted in February 2015, sets the inflation target at 4% with a tolerance band of ±2%. This means the RBI aims to keep inflation between 2% and 6%. This framework replaced the earlier approach and established the RBI's primary objective in monetary policy. The 4% target is the midpoint of the tolerance band and represents the medium-term inflation objective for India.

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