UPSC CIVIL SERVICES EXAMINATION
PRELIMS SPECIAL
1995 - 2018
PREVIOUS YEAR QUESTIONS
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ECONOMY
CHAPTER LISTING
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S.No Chapter
1 Introduction – types of economies, national income and accounting
2 Growth and development – economic growth, economic development, happiness and human development
3 Economic Planning – types of planning, planning in the Indian economy , Economic reforms
4 Inflation and business cycle
5 Agriculture
6 Industry
7 Financial system in India
8 Fiscal policy
9 External sector in India
10 International Economic Organizations
completed – L1, L2, L3
completed – L4, L5
completed – L6, L7
completed – L8, L9, L10
L 11 – Q 1-5L12 – Q 6 – 11L13 – Q 12- 14
Q. Which of the following terms indicates a mechanism used by commercial banks for providing
credit to the government? (2010)
a) Cash Credit Ratio
b) Debt Service Obligation
c) Liquidity Adjustment Facility
d) Statutory Liquidity Ratio
Answer : d
QUESTION 12
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Open Market Operations (OMO)
These are operations in which the RBI buys and sells securities in the open market.
This is done either to inject liquidity in the system or to absorb the liquidity from the system.
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Open Market Operations (OMO)
How is it different from LAF or MSF?
✓ In LAF or MSF, the Government security is getting repurchased.
✓ One party buys Government security from second party.
✓ Now, the second party promises to buy back the security after some time.
✓ So, here the security is acting as a collateral.
✓ In case of OMO, the securities are being sold permanently from one party to the another. The
second party can do anything with it.
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Q. Which of the following measures would result in an increase in the money supply in the
economy? (2012)
1. Purchase of government securities from the public by the Central Bank
2. Deposit of currency in commercial banks by the public
3. Borrowing by the government from the Central Bank
4. Sale of government securities to the public by the Central Bank
Select the correct answer using the codes given below:
a) 1 only
b) 2 and 4 only
c) 1 and 3
d) 2,3 and 4
Answer : c
QUESTION 13
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Monetary Policy Instruments
Two Types
QuantitativeOR
GeneralOR
Indirect
QualitativeOR
SelectiveOR
Direct
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Qualitative Tools
Rationing of Credit/Priority Sector Lending (PSL)
Priority sector refers to those sectors of the economy which may not get timely and adequate credit
in the absence of this special dispensation.
PSL is aimed to provide institutional credit to those sectors and segments for whom it is difficult to get
credit.
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Qualitative Tools
Rationing of Credit/Priority Sector Lending (PSL)
Categories included under the Priority Sector
Agriculture
Micro and Small Enterprises
Education
Housing
Export CreditOthers
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Qualitative Tools
Rationing of Credit/Priority Sector Lending (PSL)
PSL Targets
Three categories
Domestic Banks
Foreign banks having less than 20 branches in India
Foreign banks having 20 or more than 20 branches in India
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Qualitative Tools
Rationing of Credit/Priority Sector Lending (PSL)
PSL Targets
Domestic Banks
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Qualitative Tools
Rationing of Credit/Priority Sector Lending (PSL)
PSL Targets
Foreign banks?
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Qualitative Tools
Rationing of Credit/Priority Sector Lending (PSL)
PSL Targets NOT met……what happens?
Case 1: Domestic Banks and foreign banks having 20 and more than 20 branches in India
The amount goes to the RIDF (Rural Infrastructure Development Fund) which is managed by NABARD
(National Bank for Agriculture and Rural Development).
Case 2: For foreign banks having less than 20 branches in India
The amount goes to SEDF (Small Enterprises Development Fund) which is managed by SIDBI (Small
Industries Development Bank of India).
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Qualitative Tools
Loan to Value Ratio (LTV) / Margin Requirements
Loan-to-value (LTV) is a ratio of the amount of loan that can be given to the total value of the
property/against a fixed value of collateral
A higher LTV implies a greater loan amount and therefore, lesser down-payment that you need to
arrange out of your pocket. However, it also means a higher EMI.
A lower LTV means that you have to arrange for a larger sum to be paid as down-payment.
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Qualitative Tools
Moral Suasion
Moral Suasion is just as a request by the RBI to the commercial banks to take certain actions and
measures as per the trend of the economy.
RBI may request commercial banks not to give loans for unproductive purpose which does not add to
economic growth but increases inflation.
Direct Action
This step is taken by the RBI against banks that don’t fulfill conditions and requirements. The banks
maybe penalized for not following the directions.
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Q. Which one of the following is not an instrument of selective credit control in India? (1995)
a) Regulation of consumer credit
b) Rationing of credit
c) Margin requirements
d) Variable cost reserve ratios
Answer : c
QUESTION 13
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Types of Monetary Policy followed by RBI
Accommodative Monetary Policy
Neutral Stance of RBI
Contractionary Monetary Policy
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Types of Monetary Policy followed by RBI
Accommodative Monetary Policy
Why is it followed? To increase the money supply in the economy
How? Lowering of the repo rate by the RBI (though there are other tools as well) so that borrowing money gets easier
Remember the scenarios?
Also called as Easy or Expansionary Monetary Policy of the RBI
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Types of Monetary Policy followed by RBI
Contractionary Monetary Policy
Why is it followed? To decrease the money supply in the economy
How? Increasing the Repo Rate
Remember the scenarios?
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Types of Monetary Policy followed by RBI
Neutral stance of RBI
It provides it the flexibility to move in either of the directions. But, prevailing risk of inflation may
mean that the RBI won't cut down the interest rates.
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Q. Consider the following liquid assets: (2013)
1. Demand deposits with the banks
2. Time deposits with the banks
3. Saving deposits with the banks
4. Currency
The correct sequence of these assets in the decreasing order of liquidity is :
a) 1-4-3-2
b) 4-3-2-1
c) 2-3-1-4
d) 4-1-3-2
Answer : d
QUESTION 14
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