Practice questions
Q1Which example is most appropriately classified as capital expenditure in a government budget?
A Payment of monthly salaries to existing staff
B Expenditure on acquiring land, buildings or equipment
C Routine office electricity bill of a department
D Interest payment on past public debt
Explanation Capital expenditure is spending that results in creation of physical or financial assets, such as land, buildings, machinery, equipment or investments. Routine operating expenses are normally treated as revenue expenditure.
Q2Which statement correctly links inflation and its control mechanism in India?
A Inflation has no effect on households because wages always rise immediately.
B Inflation means a fall in the general price level, controlled only by increasing subsidies.
C High inflation erodes purchasing power, and RBI can use policy-rate changes to influence demand and credit conditions.
D Inflation is controlled by abolishing all banking operations.
Explanation Inflation is a sustained rise in the general price level, which lowers purchasing power when incomes do not keep pace. RBI's flexible inflation-targeting framework uses monetary policy instruments to guide inflation while considering growth.
Q3Why is the Insolvency and Bankruptcy Code, 2016, usually classified as a structural economic reform rather than a routine budgetary scheme?
A It authorises the RBI to issue currency notes directly to insolvent firms to prevent liquidation.
B It created a comprehensive, time-bound framework for resolving insolvency and bankruptcy, improving credit-market discipline and use of productive resources.
C It abolished the GST Council and transferred indirect-tax rate setting to the National Company Law Tribunal.
D It fixes the annual MSP for all crops and guarantees government procurement in every mandi.
Explanation IBC is a structural reform because it changes the rules for handling debt default and distressed firms. The official reform logic was that scattered and slow legal mechanisms had weakened recovery and restructuring. A time-bound insolvency framework improves creditor discipline, gives viable firms a chance of resolution as going concerns, and reallocates labour and capital toward more productive uses.
Q4Which of the following statements best captures the institutional transition from Five Year Planning to the post-Planning Commission framework in India?
A The Planning Commission was converted into the Finance Commission, and plan grants became constitutionally mandatory after 2015.
B The Planning Commission was retained for plan allocation, while NITI Aayog was created only for monitoring centrally sponsored schemes.
C NITI Aayog was established on 1 January 2015 as a replacement for the Planning Commission, while the Twelfth Five Year Plan was allowed to continue till 31 March 2017.
D NITI Aayog was created after the Twelfth Plan ended, and it prepared the Thirteenth Five Year Plan for 2017-22.
Explanation The important distinction is that India did not simply rename the Planning Commission and continue old-style plan allocation. NITI Aayog was constituted on 1 January 2015 as the replacement institution, with an advisory and cooperative-federalism role. The ongoing Twelfth Five Year Plan, covering 2012-17, continued up to 31 March 2017, after which the Five Year Plan format gave way to broader vision, strategy and action-agenda documents.
Q5In the Union Budget, which statement best describes fiscal deficit?
A It is the difference between fiscal deficit and capital expenditure.
B It is the excess of tax receipts over non-tax receipts.
C It is the excess of revenue expenditure over revenue receipts only.
D It is the excess of total expenditure over total receipts excluding borrowings.
Explanation Fiscal deficit is calculated as total expenditure minus revenue receipts and non-debt creating capital receipts. In practical terms, it indicates how much the government has to borrow to finance its expenditure gap.
More questions
6For administrative and financial decision-making, what is the main use of financial statements in accounting?
ATo provide information on assets, liabilities, results and cash flows for decision-making
BTo replace all audits conducted by public authorities
CTo guarantee that an organisation will remain profitable
DTo record only non-monetary information such as staff morale
7In consumer protection usage, e-commerce is best understood as:
ABuying or selling goods or services over a digital or electronic network
BOnly cash withdrawal from an ATM
CA government budget prepared without any digital records
DOnly the sale of agricultural goods through village fairs
8With reference to the National Agriculture Market, e-NAM, which option correctly states its launch and reform logic?
AIt abolishes all physical mandis and replaces state agricultural marketing laws with a single Union tax law.
BIt was launched in 1991 as part of industrial delicensing and applies only to manufactured goods.
CIt is a crop insurance programme that compensates farmers for yield loss due to weather shocks.
DIt was launched on 14 April 2016 as a pan-India electronic trading platform to network existing mandis on a common online market platform.
9According to the Economic Survey 2025-26 table on sectoral contribution to nominal GDP for FY26 First Advance Estimates, which broad sectoral pattern is correct?
AServices contribute about 51.1 per cent, industry about 24.3 per cent, and agriculture, livestock, forestry and fishing about 15.2 per cent.
BAgriculture and industry together exceed services by a large margin, showing India's return to a primary-sector-led GDP structure.
CIndustry contributes more than services, while agriculture contributes below 5 per cent.
DAgriculture is the largest sector, followed by industry and then services.
10Which banking term refers to the portion of a bank's net demand and time liabilities that must be kept with the Reserve Bank of India?
ACapital Adequacy Ratio
BCash Reserve Ratio
CStatutory Liquidity Ratio
DCredit-Deposit Ratio
11In the context of India's industrial policy shift, which statement best describes the Production Linked Incentive scheme?
AIt is a public distribution scheme for subsidised foodgrains, linked to household consumption rather than production.
BIt is a monetary policy instrument used by the RBI to set banks' cash reserve ratio sector-wise.
CIt is a state-only scheme under which each state independently selects sectors without Union approval or common national objectives.
DIt offers incentives linked to incremental production or sales in selected strategic sectors to strengthen manufacturing and localisation.
12Which statement most accurately describes India's flexible inflation targeting framework as a reform in macroeconomic management?
AIt treats exchange-rate stability as the sole objective of monetary policy and removes concern for domestic prices.
BIt defines CPI inflation of 4 per cent with a tolerance band of plus or minus 2 percentage points as the nominal anchor.
CIt targets wholesale price inflation at 6 per cent with no formal tolerance band.
DIt requires the Union Budget to set the repo rate directly every year.
13Which option most accurately explains why GST is treated as a major indirect-tax reform in India?
AIt replaced all direct taxes, including income tax and corporation tax, with a single tax on household wealth.
BImplemented from 1 July 2017, it replaced a complex web of central and state indirect taxes with a destination-based dual GST structure using CGST, SGST and IGST.
CIt is collected only by municipal bodies and applies exclusively to property transactions in urban areas.
DIt is a monetary reform that sets the inflation target at 4 per cent with a tolerance band.
14In the share market, buying an equity share of a company generally means that the investor becomes:
AA bank depositor protected from price changes
BA part owner of the company, subject to market risk
CA government-appointed auditor of the company
DA guaranteed creditor with fixed interest income
15Under India's monetary policy framework, what is the primary objective of monetary policy?
ATo maximise tax collection for the Union Government
BTo decide the allocation of foodgrains under the Public Distribution System
CTo maintain price stability while keeping growth in mind
DTo set the annual rates of income tax
