Basic Quiz – 23 October 2026 | Economy

Correct Answer: (b) 1, 2 and 3 only

Explanation:

• Statement 1: Correct. Fiscal Deficit is the difference between the government’s total expenditure and its total non-debt receipts. It broadly indicates the government’s borrowing requirement during a financial year.
• Statement 2: Correct. Revenue Deficit occurs when revenue expenditure exceeds revenue receipts. It indicates that the government’s regular revenue is insufficient to meet its revenue expenditure.
• Statement 3: Correct. Capital expenditure includes spending that creates assets or reduces liabilities. Examples include construction of highways, railways, public infrastructure and repayment of loans.
• Statement 4: Incorrect. A government can have a fiscal deficit even without a revenue deficit. For example, its revenue receipts may cover revenue expenditure, while capital expenditure exceeds available non-debt resources.

Remember for Prelims:

• Fiscal Deficit: Total Expenditure – Total Receipts excluding borrowings.
• Revenue Deficit: Revenue Expenditure – Revenue Receipts.
• Primary Deficit: Fiscal Deficit – Interest Payments.
• Effective Revenue Deficit: Revenue Deficit – Grants for Creation of Capital Assets.
• Revenue Receipts: Tax revenue and non-tax revenue.
• Capital Receipts: Borrowings, recovery of loans and disinvestment proceeds.
• Revenue Expenditure: Expenditure that generally does not create assets or reduce liabilities.
• Capital Expenditure: Expenditure that creates assets or reduces liabilities.
• FRBM Act, 2003: Fiscal Responsibility and Budget Management Act.
• Article 112: Annual Financial Statement of the Union Government.

Correct Answer: (d) 1, 2 and 3 only

Explanation:

• Statement 1: Correct. The Current Account records transactions involving goods, services, primary income such as interest and dividends, and secondary income such as personal transfers between residents and non-residents.
• Statement 2: Correct. Personal remittances received from Indians working abroad are generally recorded under secondary income in the Current Account. They represent an important source of foreign exchange inflows for India.
• Statement 3: Correct. FDI involves a lasting interest and significant influence in an enterprise located in another economy. Under international Balance of Payments accounting, FDI transactions are recorded in the financial account.
• Statement 4: Incorrect. A Current Account Deficit does not necessarily lead to a decline in foreign exchange reserves. It may be financed through financial inflows such as FDI, portfolio investment or external borrowing. If these inflows are sufficient, foreign exchange reserves may remain stable or even increase.

Remember for Prelims:

• BoP: Balance of Payments.
• Current Account: Goods, services, primary income and secondary income.
• Trade Deficit: Value of merchandise imports exceeds merchandise exports.
• Current Account Deficit (CAD): Current account payments exceed current account receipts.
• FDI: Foreign Direct Investment.
• FPI: Foreign Portfolio Investment.
• FDI vs FPI: FDI involves lasting interest and significant influence, whereas FPI generally involves investment in financial securities without direct control over management.
• Foreign Exchange Reserves: Include foreign currency assets, gold, Special Drawing Rights (SDRs) and India’s reserve position in the IMF.
• RBI: Compiles and publishes India’s Balance of Payments statistics.
• Depreciation: Fall in the value of a currency under a market-determined exchange rate system.
• Devaluation: Official reduction in the value of a currency under a fixed or managed exchange rate arrangement.

Correct Answer: (c) 1, 2 and 3 only

Explanation:

• Statement 1: Correct. The Repo Rate is the interest rate at which the RBI provides short-term liquidity to eligible banks against government securities under repurchase agreements. It is a key policy rate in India’s monetary framework.
• Statement 2: Correct. A higher Repo Rate generally increases borrowing costs in the economy. This can moderate credit demand, consumption and investment, helping contain inflationary pressures.
• Statement 3: Correct. CRR is the proportion of a bank’s Net Demand and Time Liabilities (NDTL) that must be maintained as cash balances with the RBI. It is used to manage liquidity in the banking system.
• Statement 4: Incorrect. The Monetary Policy Committee has six members: three from the RBI and three external members appointed by the Central Government. The RBI Governor serves as its ex officio Chairperson.

Remember for Prelims:

• RBI: Established in 1935 under the Reserve Bank of India Act, 1934.
• Repo Rate: Rate at which RBI lends against eligible securities through repurchase transactions.
• CRR: Cash Reserve Ratio.
• SLR: Statutory Liquidity Ratio, maintained in specified liquid assets.
• MPC: Monetary Policy Committee.
• MPC Composition: Six members, three internal and three external.
• MPC Chairperson: RBI Governor.
• MPC Decisions: Taken by majority vote.
• Casting Vote: The RBI Governor has a casting vote in the event of a tie.
• Expansionary Monetary Policy: Generally aims to increase liquidity and stimulate economic activity.
• Contractionary Monetary Policy: Generally aims to restrain demand and inflationary pressures.

Correct Answer: (a) 1, 2 and 4 only

Explanation:

• Statement 1: Correct. Inflation is a sustained rise in the general price level of goods and services over time. It reduces the purchasing power of money, meaning the same amount of money purchases fewer goods and services.
• Statement 2: Correct. CPI measures changes in the retail prices paid by consumers for a representative basket of goods and services. It is an important indicator of household inflation.
• Statement 3: Incorrect. India’s WPI covers goods, including primary articles, fuel and power, and manufactured products. It does not directly include services such as education, banking or healthcare.
• Statement 4: Correct. India’s flexible inflation-targeting framework uses CPI-based inflation. The Monetary Policy Committee adjusts monetary policy to achieve the notified inflation target while keeping growth considerations in mind.

Remember for Prelims:

• Inflation: Sustained increase in the general price level.
• Deflation: Sustained decline in the general price level.
• Disinflation: Reduction in the rate of inflation while prices may continue rising.
• CPI: Consumer Price Index.
• WPI: Wholesale Price Index.
• CPI Data: Released by the National Statistical Office.
• WPI Data: Released by the Office of the Economic Adviser under the Ministry of Commerce and Industry.
• Headline Inflation: Inflation measured across the overall consumer basket.
• Core Inflation: Commonly measured by excluding food and fuel components.
• Inflation Target: India’s framework has used a 4% target with a tolerance band of 2 percentage points on either side.

Correct Answer: (b) 1, 2 and 4 only

Explanation:

• Statement 1: Correct. GDP measures the monetary value of final goods and services produced within the domestic territory of an economy during a particular period, usually one financial year.
• Statement 2: Correct. Nominal GDP is measured at current prices, whereas Real GDP is measured at constant prices to eliminate the effect of price changes.
• Statement 3: Incorrect. The value of intermediate goods is not counted separately when calculating GDP through the final-goods approach. Including intermediate goods would result in double counting because their value is already incorporated into the final product.
• Statement 4: Correct. Nominal GDP can increase because of inflation even when the actual quantity of goods and services produced remains unchanged.

Remember for Prelims:

• GDP: Gross Domestic Product.
• Nominal GDP: GDP measured at current prices.
• Real GDP: GDP measured at constant prices.
• GDP Deflator: (Nominal GDP / Real GDP) × 100.
• GVA: Gross Value Added, calculated as the value of output minus intermediate consumption.
• GDP at Market Prices: GVA at basic prices + Product taxes – Product subsidies.
• Double Counting: Counting the value of the same output more than once.
• NSO: National Statistical Office, responsible for preparing India’s national income estimates.
• GDP vs GNI: GDP is based on domestic production, while Gross National Income includes net primary income from abroad.