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General Studies Free Quiz- Test Paper No.1 Answers:

Evaluate Yourself:

  1. Since independence, both development and non-development expenditures have increased. Which of the following falls under non-development expenditure?
    1. Interest payments
    2. Subsidies
    3. Defence
    4. Irrigation

    2. Select the correct answer from the codes given below

    • Only 1 and 2 are correct
    • Only 1 is correct
    • Only 1, 2 and 3 are correct
    • Only 2, 3 and 4 are correct
    Answer:
    C
  2. Liquidity trap refers to
    1. Individual prefers to hold bonds
    2. Individual prefers to hold money
    3. Minimum rate of interest
    4. Higher rate of interest

    3. Which of the above statement(s) is/ are correct?

    1. Only1 and 2
    2. Only 2 and 3
    3. Only 3 and 4
    4. Only 1 and 4
    Answer:

    B

    Explanation:

    The Liquidity trap is a Keynesian idea. When expected returns from investments in securities or real plant and equipment are low, investment falls, a recession begins, and cash holdings in banks rise. People and businesses then continue to hold cash because they expect spending and investment to be low. This is a self-fulfilling trap.

  3. Consider the following statements:
    1. Progressive taxation combined with regressive expenditure in a country can help in better redistribution of income for the poor and vulnerable sections.
    2. Any retrospective effect made in the legislature would result in bad or negative sign towards the economy.
    3. As economy passes through the transition phase from developing to developed status, demand for white goods increases.

    Which of the above statement is / are correct?

    • Only 1 and 2
    • Only 2 and 3
    • Only 1 and 3
    • All are correct
    Answer:

    D

  4. In the parlance of financial investment, the term ‘bear’ denotes:
    • An investor who feels that the price of a particular security is going to fall.
    • An investor who feels that the price of a particular security is going to rise.
    • An investor who wants to invest in money in a particular share of a company after getting information from inside of the management.
    • A lender who wants to lend money for short term period for a good return.
    Answer:

    A

    Explanation:

    Bear market is a general decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear and pessimism. According to The Vanguard Group, “While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period.

  5. Consider the following statements related to Ways and Means Advances.
    1. It is a mechanism used by RBI and is used to bridge any gap arising from short periods between expenditure and receipt of the State Governments. The States can carry on their necessary activities in spite of mismatches on fiscal transactions.
    2. Any amount drawn by a State in excess of WMA is called an overdraft. Maximum Duration of Overdraft is 10 consecutive working days for Central Government and 14 consecutive working days for a State government.

    6. Which of the above statement(s) is/are correct?

    • Only 1
    • Only 2
    • Both 1 and 2
    • None of the above
    Answer:

    C

    Explanation:

    RBI provides Ways and Means Advances (WMA) to the States in order to assist them to overcome these temporary mismatches in the cash flow of their receipts and payments. Thus, WMA is a mechanism used by RBI under its credit policy. It is a temporary in character and used to bridge any gap arising from short periods between expenditure and receipt of the State Governments. WMA are not a source of finance but are meant to provide a cushion to the States, so that they can carry on their necessary activities in spite of mismatches on fiscal transactions. Time Period of WMA facility is maximum 90 days i.e. WMA is repayable in each case not later than 3 months from the date of making the advance. Any amount drawn by a State in excess of WMA is called an overdraft. Maximum Duration of Overdraft is 10 consecutive working days for Central Government and for a State, it is 14 consecutive working days and 36 working days in a quarter.

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