Indian Economy — UPSC Prelims practice questions

Question 1

Tax buoyancy refers to: (A) The extent to which tax revenue responds to changes in GDP (B) The share of direct taxes in total tax revenue (C) The ratio of tax collected to tax demanded (D) The speed with which GST refunds are processed

Accepted Answer

(A) The extent to which tax revenue responds to changes in GDP — Correct. Tax buoyancy measures how tax revenue changes in response to changes in national income or GDP, capturing both automatic growth and policy effects.

Question 2

The Mahalanobis two-sector model divided the economy into: (A) Agriculture sector and services sector (B) Capital goods sector and consumer goods sector (C) Export sector and import-substitution sector (D) Urban sector and rural sector

Accepted Answer

(B) Capital goods sector and consumer goods sector — Correct. P.C. Mahalanobis divided the economy into a capital goods (investment) sector and a consumer goods sector, arguing that prioritizing capital goods would lead to higher long-run growth.

Question 3

Which one of the following best captures the purpose of Fair and Remunerative Price (FRP) in the sugar sector? (A) To set a support price for sugarcane that sugar mills are expected to pay farmers (B) To regulate the retail price of tea (C) To fix import tariff on crude oil (D) To determine the exchange rate of the rupee

Accepted Answer

(A) To set a support price for sugarcane that sugar mills are expected to pay farmers — Correct. FRP is the benchmark price fixed for sugarcane payable by sugar mills to farmers.

Question 4

The Government Bond Yields in India are influenced by:
1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates in India
Select the correct answer using the code given below: (A) 1 and 2 only (B) 2 only (C) 2 and 3 only (D) 1, 2 and 3

Accepted Answer

(D) 1, 2 and 3 — Correct. Indian government bond yields are influenced by global monetary conditions (including US Federal Reserve policy), RBI's own monetary policy actions, and domestic inflation and interest rate expectations.

Question 5

Consider the following statements about the Finance Bill:
1. It gives effect to the financial proposals of the government for the year, including changes in tax rates.
2. It must be passed by Parliament within 75 days of its introduction.
3. The Rajya Sabha can only recommend amendments to the Finance Bill but cannot reject or amend it.
Which of the statements given above is/are correct? (A) 1 only (B) 1 and 3 only (C) 2 and 3 only (D) 1, 2 and 3

Accepted Answer

(B) 1 and 3 only — Correct. The Finance Bill is a Money Bill that gives effect to the government's tax proposals. Since it is a Money Bill, the Rajya Sabha can only suggest amendments within 14 days but cannot reject or amend it. Statement 2 is incorrect because the requirement is that the Finance Bill must be passed within 75 days of introduction only as a convention, and the actual constitutional timeline is that Rajya Sabha has 14 days to return it.

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