ECONOMICS PART A: INDIAN ECONOMICS DEVELOPMENT

UNIT – 1 ON THE EVE OF INDEPENDENCE

Choose the correct option:

1. The India economy on the eve of the independence was:
a) Developed b) underdeveloped c) stagnant d) both (b) and (c)
2. Landholdings at the time of independence were:
a) fragmented b) large c) small d) both (a) and (c)
3. Farming which focuses on basic needs of the family is called:
a) Stagnant farming b) subsistence farming c) commercial farming d) none of these
4. Decay of handicrafts was caused by:
a) British tariff policy b) competition from machine-made products
c) change in the patterns of demand d) none of these
5. Suez Canal was opened in:
a) 1867 b) 1868 c) 1869 d) 1870

Choose appropriate word and fill in the blank:

6. During the colonial rule, India was a ____________ of finished products from/to Britain.
(net exporter/net importer)
7. The year _________ is regarded as the ‘Year of Great Divide’ in the history of
demographic transition of India.(1921/1931)
8. Occupational structure refers to the distribution of _________ across primary, secondary
and tertiary sectors of the economy. (population/ working population)
9. ___________ as a production activity, belongs to primary sector of the economy. (Animal
Husbandry / storage)
10. At the time of independence, secondary and ___________ sectors were in their infant
stage of growth. (primary /tertiary)

In the following questions (1-5), a statement of Assertion (A) is followed by a statement of

Reason (R). Choose the correct alternative among those given below:
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
1. Assertion (A): India experienced trade surplus during British rule.
Reason(R): British used the trade to finance their administrative expenses in India.
2. Assertion (A): British levied no tariffs on export of raw material from India to Britain.
Reason(R): Under the colonial rule, Indian handicraft sector suffered a massive decay.
3. Assertion (A): Zamindari system brought instability to Indian cultivation during the
British rule.
Reason(R): Zamindari system led to frequent ejection of the tillers of the soil.
4. Assertion (A): Spread of railways opened up new opportunities of economic growth for
Britain.
Reason(R): Spread of railways led to expansion of market for the British products in
India.
5. Assertion (A): The British government established a monopoly control over India’s
foreign trade.
Reason(R): The opening of Suez Canal not act as a determinant in promoting trade with
Britain.

HOTS & Applications

1. How railways reduced the impact of famines during the colonial period?
2. How would you support the view that the destruction of handicraft in India coincided
with the industrial revolution in Great Britain?
3. The policy of colonial exploitation of the Indian economy during the British Raj had
some positive side-effects for the Indian economy. Do you agree?
4. How did discriminatory trade policy contribute to the success of industrial revolution in
Great Britain?

ECONOMY PLANNING

Choose the correct option:

1. In which year was India’s First Five Year Plan launched?
a) 1951 b) 1947 c) 1940 d) 1955
2. Which of the following bodies/institutions was engaged in the formulation of Five Year
Plans in India?
a) Planning Commission b) National Development Council c) Finance Ministry d) Home Ministry
3. When was Planning Commission established?
a) 1947 b) 1948 c) 1950 d) 1951
4. Planning commission was established under the chairmanship of:
a) P.C. Mahalanobis b) Jawaharlal Nehru c) V.K.R.V. Rao d) B.R. Ambedkar
5. An economy in which means of production are used in a manner such that social welfare
is maximized is called:
a) Mixed economy b) socialist economy c) capitalist economy d) none of these
6. Which was the last Five Year Plan in India?
a) Eleventh Plan b) Twelfth Plan c) Thirteenth Plan d) Fourteenth Plan

In the following questions (1-5), two statements are given. Read the statements carefuly
and choose the correct alternative among those given below:
Alternatives:
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 2 is true and statement 1 is false
1. Statement 1: In India planning covers economic as well as social spheres of activity.
Statement 2: Planning that covers both the social and economic spheres of growth is called
Directive Planning.
2. Statement 1: In a mixed economy, means of production are collectively owned by the
society as a whole.
Statement 2: In a mixed economy, production decisions are governed only by the principle
of profit maximization.

3. Statement 1: In 1950, the Planning Commission was set up under the Chairperson of the
then Prime Minister Pandit Jawaharlal Nehru.
Statement 2:P.C. Mahalanobis is known as the Architect of Indian Planning.

4. Statement 1: Discovery of more and more resources along with development of

innovative technology leads to increase in GDP.
Statement 2: A consistent increase in GDP leads to a consistent increase in the flow of
goods and services in the economy over a long period of time.

5. Statement 1: Equity implies that economic growth is related to social justice.

Statement 2: Equitable distribution would mean that every individual in the society gets
the same share in the country’s national income.

Read thefollowing case study carefully and answer the questions 1-6 on the basis of the
same:
One of the principle objective of the planning in underdeveloped countries is to increase
the rate of economic development. In the words D.R. Gadgil “Planning for economic
development implies external direction or regulation of economic activity by the planning
authority which in most cases identify with the government of state.” It means planning
increases the rate of capital formation by raising the levels of income, saving and
investment. It is only a central planning authority which can control banking and other
credit institutions when these are under private enterprise they have a tendency to crowd
in urban areas. The vast rural areas are completely neglected and thrown to the wolves,
the indigenous money-lender. A planned economy can revolutionize the economy by
providing financial institutions and by mobilizing savings and investments in the rural
areas. Planning alone can remove the imbalance in foreign trade which is generally
unfavorable to the underdeveloped countries that are the exporters of primary produce
and imports of
produced goods.
1. Increase in GDP depends upon __________.
a) increase in resource base of the country b) focus on urban areas
c) increase in productivity d) both (a) and (c)
2. Planning in India was to ensure ___________.
a) efficient utilization of resources b) improvement in production technology
c) both (a) and (b) d) neither (a) nor (b)
3. Which of the following is not an example of the Common Goals of Five Year Plans?
a) Modernisation b) Self-reliance c) Poverty alleviation d) Equity
4. Statement 1: Plans should have goal, i.e. without goals there is different no planning.
Statement 2: Planning is defined as a strategy that defines how to allocate the country’s
scarce resources to different uses with a view to achieving a given set of goals.
Alternatives:
a) Both the statements are true. b) Both the statements are false.
c) Statement 1 is true and statement 2 is false. d) Statement 2 is true and statement 1 is false.
HOTS & Applications
1. State any 2 long term objectives of five year plans in India?
2. Unemployment has risen despite the fact that opportunities of employment have risen
during the Five Year Plans.
3. Poverty has reduced, but the gulf between the rich and the poor has widened.
4. Despite a significant rise in public investment (during Five Year Plans), the GDP growth
has continued to be rather slow.
5. Despite the fact that GDP has grown consistently during the Five Year Plans, the
challenge of inflation almost never subsided.

1950 – 1990

Choose appropriate word and fill in the blank:

1. Productivity means ………….per hectare of land. (output/input)

2. …………. unemployment occurs owing to excessive burden of population in agricultural
sector. (Cyclical/Disguised)
3. For their recurring financial needs, the small farmers depend upon ………….sources.
(institutional/non-institutional)
4. Land reforms are known as …………._ reforms. (institutional/technical)
5. _…………. enhances the bargaining power of small landowners. (Consolidation of
land/Cooperative farming)

In the following questions (1-3), a statement of Assertion (A) is followed by a statement of

Reason (R). Choose the correct alternative among those given below:
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true
1. Assertion (A): Subsidy is important for enabling adoption of new agricultural technology.
Reason(R): Subsidy leads to wasteful consumption of resources.
2. Assertion (A): Small scale industries promote balanced regional growth.
Reason(R): Small scale industries show locational flexibility.
3. Assertion (A):The land reforms initiated by the government intended to support the
tillers of the soil.
Reason(R): The intermediaries (zamindars) had been exploiting the actual cultivators of
the soil.

HOTS & Applications

1. Land reforms (institutional reforms) have played a significant role in transforming
Indian agriculture. How?
2. Explain the relative importance of large-scale and small-scale industry in the growth
process of the Indian economy?
3. Substantiate the statement that during the period 1951-90, good effects of the strategy
of industrialization were overshadowed by its bad effects.
4. India’s exports have declined even when rupee has depreciated in the recent past. How
do you explain this fact?
5. How GDP growth is linked with foreign trade of a country?

New Economic Policy 1991

Choose the correct option:
1. In the context of Indian experience, controls were imposed by the government with a
view to:
a) Checking the growth of private monopolies
b) Minimizing the hold of large industrial houses on the financial resources of the country
c) Both (a) and (b) d) None of these
2. Liberalisation of the economy under the new economic policy changed the role of RBI in
the economy:
a) From a ‘regulator’ to a ‘facilitator’ of the financial sector
b) From a ‘controller’ to a ‘manager’ of the government debt
c) both (a) and (b) d) none of these
3. Industrial sector reforms under the New Economic Policy (NEP) comprised which of the
following?
a) Abolition of industrial licencing b) De-reservation of production areas
c) Contraction of public sector d) All of these
4. External sector reforms under NEP included:
a) Foreign exchange reforms b) Foreign trade policy reforms
c) both (a) and (b) d) none of these
5. The WTO was found as the successor organization to:
a) International Monetary Fund (IMF)
b) National Bank for Agriculture and Rural Development (NABARD)
c) General Agreement on Tariff and Trade (GATT)
d) International Bank for Reconstruction and Development (IBRD)

In the following questions (1-5), two statements are given. Read the statements carefully
and choose the correct alternative among those given below:
Alternatives:
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 2 is true and statement 1 is false
1. Statement 1: Economic reforms have increased the flow of goods and services, technology and
expertise between India and rest of the world.
Statement 2: Owning to investment, fiscal deficit has tended to rise.

2. Statement 1: Demonetisation is a policy action of the government that withdraws the status of
legal tender from the existing currency.
Statement 2: Owing to demonetization and greater financial inclusion, financial-base of the banking
sector tends to increase.

3. Statement 1: NEP has encouraged disinvestment by the government.

Statement 2:Owing to NEP, monetary policy of the government has come under a severe stress.

4. Statement 1: WTO replaced the General Agreement on Tariffs and Trade (GATT).
Statement 2: Globalisation is the outcome of the policies of Liberalisation and Privatisation.

5. Statement 1: Fiscal policy refers to the revenue of and expenditure policyof the government.
Statement 2: The Fiscal policy seeks to achieve stability in the economy.

HOTS & Applications

1. How does liberalization of the economy lead to economic growth?
2. How does privatisation lead to fiscal consolidation?
3. What makes India a favourite destination for outsourcing?

UNIT-3 Comparative Development experience of India: A comparison

with Neighbours B.Wt: 8 Marks

Choose appropriate word and fill in the blank:

1. …………. has shown brighter sign of urbanization. (India/Pakistan)

2. One child policy was adopted in China in the year …………._. (1978/1979)
3. International poverty line is determined at …………._ a day. (US$ 3.20/ US $ 3.50)
4. ………….has democratic political structure. (China/India)
5. …………._ refers to system of collective farming (Commune system/Community system)
6. The relative success of China is credited to …………. stability in China. (social/political)

In the following questions (1-5), a statement of Assertion (A) is followed by a statement of

Reason (R). Choose the correct alternative among those given below:
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true

1. Assertion (A): Great Proletarian Cultural Revolution was launched to address economic recession.
Reason(R): Great Leap Forward failed to accelerate the pace of development.
2. Assertion (A): China has the lowest density of population as compared to India and Pakistan.
Reason(R): China has a very large geographical area.
3. Assertion (A):GLF was the campaign launched in China to accomplish economic and industrial
development at a faster rate.
Reason(R): It focused on discouraging people to establish industries in their backyard.
4. Assertion (A): Pakistan relies upon remittances and borrowings from abroad to meet its forex
needs.
Reason(R): It experiences volatility in its forex reserves.
5. Assertion (A): Liberty indicator relates to political freedom.
Reason(R): India initiated economic reforms in 1991.

Read thefollowing case study carefully and answer the questions 1-6 on the basis of the
same:
Pakistan adopted economic stabilization and structural reform policies in 1988 in an effort
to reduce domestic financial imbalances and external deficits. However, there have been
problems with the implementation of these policies, in terms of consistency and
sequencing. The period 1988–1996 was characterized by repeated attempts to stabilize
the economy amid weak efforts at structural reforms. Since policy measures were not able
to achieve their objectives, the Pakistan economy continued to be trapped in a vicious
circle of poverty, low growth, low savings, and low investment, which further hampered
growth and poverty alleviation.
1. _………….has the highest share in GVA/GDP in Pakistan while …………. is the largest employer.
a) Agriculture, service sector b) service sector, agriculture
c) Agriculture, manufacturing d) Manufacturing, agriculture
2. ………….has higher population density than Pakistan.
a) India b) China c) Pakistan d) All of these
3. India has …………. share of service sector in GDP than China.
a) higher b) lower c) zero d) constant
4. Pakistan has _…………. number of poor than India.
a)higher b) lower c) equal d) none of these
5. Statement 1: In China, ownership of all resources vests with the state.
Statement 2: In China, external trade is governed by the forces of supply and demand.
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 2 is true and statement 1 is false.
6. Introduction of Five Year Plan in China took place in:
a) 1951 b) 1953 c) 1956 d) 1958

Data based Questions

1.

Country Density Sex ratio Fertility ratio urbanisation

India 455 924 2.2 34
China 148 949 1.7 59
Pa:kistan 275 943 3.6 37
On the basis of the above-mentioned information answer the following questions:

Which of the following countries shows brighter signs of urbanisation?

a) India b) China c) Pakistan d) Both (b) and (c)

HOTS & Applications

1. Explain how China has performed better than India?

2. What led to rapid growth in China, even when India, China and Pakistan together
adopted the strategy of economic reforms?
3. Answer the following questions on the basis of the following data:
a) Comment upon the population growth rates among the three countries.
b) Which country has most skewed sex ratio?
Country Estimated Population Annual Growth of Sex ratio
(in million) Population (in %)
India 1311 1.2 929
China 1371 0.5 941
Pakistan 188 2.1 947

4. Compare and analyse the given data of distribution of workforce (in 2018-19) with valid
Reasons
Country Agricultural (%) Industry (%) Services (%)

India 43 25 32
China 26 28 46
Pakistan 41 24 35

PART B MACROECONOMICS
UNIT:-2 MONEY BANKING (Boardweightage.6marks)
1. Define bank rate.
2. State the components of money supply.
3. Explain the process of money creation by commercial banks.
4. How do changes in bank rate affect money creation by commercial banks? Explain
5. Explain the ‘bankers to the government function of the central bank.
6. Define money supply and its features
7. What are demand deposits?
8. What is bank money?

Choose appropriate word and fill in the blank:

1. …………. value of a paper note is what is written on it. (money/commodity)
2. …………. money is accepted as a medium of exchange because of the trust between the
payer and the payee. (Fiat/Fiduciary)
3. Under the barter system of exchange, acts of sale and purchase of an individual occur at
the …………. point(s) of time. (Same/different)
4. …………. refers to total stock of money held by the people of a country at a point of time.
(supply of money/demand for money)

In the following questions (1-5), a statement of Assertion (A) is followed by a statement of

Reason (R). Choose the correct alternative among those given below:
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A).
c) Assertion (A) is true but Reason (R) is false
d) Assertion (A) is false but Reason (R) is true

1. Assertion (A): Cheques are fiduciary money.

Reason(R): Cheques are accepted as a means of payment on the basis of trust between
the payer and the payee.

2. Assertion (A): A common medium of exchange exists in the C-C economy.

Reason(R): In the C-C economy, saving is possible only by way of storage of goods .

3. Assertion (A): Notes & coins are money backed with authority of the government.
Reason(R): Notes & coins are legal tenders.

4. Assertion (A): Stock of money held by the supplier of money is a part of the supply of
money in the country.
Reason(R): In India, RBI is the principal supplier of money.

5. Assertion (A): With the introduction of money, acts of sale and purchase have been
separated.
Reason(R): Initially money was invented as a store of value.

Choose the correct option:

1. Which of the following does not come under quantitative methods of monetary policy:
a) Open market operations b) Cash reserve ratio c) Moral suasion d) Repo rate
2. Open market operations as an instrument of credit control are performed by:
a) The central bank of the country b) the commercial bank of the country
c) both (a) and (b) d) None of these
3. With an increase in margin requirement, availability of credit in the economy:
a) increases b) decreases c) unchanged d) none of these

4. If inflation is to be combated, the RBI:

a) Raises SLR and lowers CRR b) lowers SLR and raises CRR
c) raises both CRR as well as SLR d) none of these
5. If recession is to be to be combated:
a) Bank rate needs to be lowered b) CRR needs to be lowered
c) Both (a) and (b) d) repo rate needs to be lowered and CRR needs to be raised
6. Reverse Repo rate:
a) Generates interest income b) is increased to curb inflation
c) is not a policy rate d) both (a) and (b)

Read thefollowing case study carefully and answer the questions 1-6 on the basis of the
same:
Monetary policy during 2019-20 was conducted under the revised statutory framework,
which became effective from June 27, 2016. As on end January 2020, five meetings of the
Monetary Policy Committee (MPC) have been held in financial year 2019-20. In the first
four meetings, the MPC decided to cut the policy repo rate changing the stance of
monetary policy from neutral to accommodative. The repo rate was reduced by 110 basis
points (bps) from 6.25 per cent in April 2019 to 5.15 per cent in October 2019. MPC’s
decision was guided by low inflation and the need to strengthen domestic growth by
spurring private investment in the economy.
1. Who controls monetary policy in India?
a) Reserve Bank of India b) Commercial Bank c) Cooperative Bank d) Government of India
2. … is the rate at which commercial banks are allowed to park their surplus funds with
the RBI.
a) Bank Rate b) Repo Rate c) Reverse repo rate d) None of these
3. Decrease in Repo rate will lead to:
a) Fall in money supplyb) no change in money supply c) rise in money supply d) none of
these
4. Quantitative instruments of credit control are the instruments of ____________.
a) fiscal policy b) monetary policy c) budgetary policy d) economic policy
5. Statement 1: A fall in SLR increases money supply in the economy.
Statement 2: Fall in SLR enhances capacity of the commercial banks to create credit .
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 2 is true and statement 1 is false.
6. Reverse Repo Rate is a quantitative instrument of credit control. True or false

UNIT:-4 GOVERNMENT BUDGET (Boardweightage.6marks)

1. How can a govt. budget help in reducing in equalities of income? Explain
2. Distinguish between (i)direct tax &indirect tax (ii) revenue deficit & fiscal deficit
3. Giving reasons classify the following into direct &Indirect tax
(i) Wealth Tax (ii) Value added Tax
4. Distinguish between:
(i) Capital Expenditure & Revenue Expenditure.
(ii) Fiscal Deficit & Primary Deficit.
5. Explain the “allocation of resources” objective of govt. budget.
6. Find out (i)Revenue deficit(ii) Fiscal deficit (iii) Primary deficit
a. Capital receipts net of borrowing 95
b. Revenue deficit 100
c. Interest payments 10
d. Revenue receipts 80
e. Capital exp. 110
7. Calculate revenue deficit, fiscal deficit and primary deficit
a. Tax revenue 47
b. Capital receipt 34
c. Non tax revenue 10
d. Borrowings 32
e. Revenue 80
f. Interest payments 20
8. Calculate (i) Revenue deficit (ii)Fiscal deficit & primary deficit
a. Plan capital exp. 120
b. Revenue exp. 100
c. Non plan capital exp. 80
d. Revenue receipts 70
e. Capital receipts 140
f. Interest 20

Choose the correct option:

1. Capital receipt is that receipt of the government which:
a) Creates a liability b) reduces the assets c) both (a) and (b) d) neither (a) nor (b)
2. Which of the following are capital receipts of the government?
a) Recovery of loans b) Borrowings c) Disinvestment d) All of these
3. Capital expenditure is that estimated expenditure of the government by which?
a) Assets are increased b) liability is decreased
c) both (a) and (b) d) assets and liabilities do not change
4. Deficit budget refers to that situation in which government’s budget
expenditure is:
a) Less than its budget receipts b) more than its budget receipts
c) equal to its budget receipts d) none of these
5. Fiscal Deficit =
a) Total expenditure – Total receipts other than borrowing
b) Revenue expenditure – Revenue receipts
c) Capital expenditure – Capital receipts
d) Revenue expenditure + Capital expenditure – Revenue receipts

In the following questions (1-3), two statements are given. Read the statements
carefully and choose the correct alternative among those given below:
Alternatives:
a) Both statements are true.
b) Both statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 2 is true and statement 1 is false
1. Statement 1: Disinvestment is an example of non-debt creating capital receipt.
Statement 2: Recovery of loans is a revenue receipt.

2. Statement 1: High capital receipts are often related to compulsions of borrowings.

Statement 2: Revenue budget impact asset-liability status of the government.
3. Statement 1: Fiscal deficit is the difference between primary deficit and interest
payment.
Statement 2:Fiscal deficit is measured in terms of borrowings.

UNIT:-5 FOREIGN EXCHANGE RATE & BALANCE OF PAYMENT

(Board weightage.6marks)
1. Distinguish between balance on trade account& balance on current account
2. There is inverse relation between foreign exchange rate & demand for foreign
exchange why? Explain.
3. Distinguish between devaluation & depreciation of domestic currency.
4. Distinguish between Autonomous & accommodating transactions of BOP account.
5. Giving reasons state wheather the following statements are true or false.
(i)Excess of foreign exchange receipts over foreign exchange payment on account of
Accommodating items.
(ii)Export & imports of machines are recorded in capital account of the balance of
Payment account.
6. Giving reasons state whether the following statement are true or false.
(i) Current account of BOP record only export &imports goods and services
(ii) Foreign investment are recorded in the capital account of BOP.
7.Recently Govt. of India has doubled the import duty on gold. What impact is itlikely
to have on foreign exchange rate &how?
8.Foreign exchange rate in India is on the rise recently. What impact is itlikely to
have on exports & how?
Choose the correct option:
1. When the exchange rate rises due to managed floating, it is called:
a) devaluation b) appreciation c) depreciation d) revaluation
2. Which of the following functions are performed in a foreign exchange market?
a) Transfer function b) Credit function c) Hedging function d) All of these
3. Hedging is possible in:
a) Spot market b) forward market c) managed floating system d) none of these
4. Spot market is that market where:
a) Only current transactions are handled b) Forward rate of exchange is determined
c) instant rate of exchange is determined d) both (a) and (c)
5. Forward market is that market which:
a) Handles transactions of foreign exchange meant for future delivery
b) Handles current transactions
c) handles current as well as future transactions
d) None of these

In the following questions (1-2), a statement of Assertion (A) is followed by a

statement of Reason (R). Choose the correct alternative among those given below:
 Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false
d. Assertion (A) is false but Reason (R) is true
1. Assertion (A): In case of devaluation, the market forces of supply and demand play
no role whatsoever.
Reason(R): Devaluation leads to excess demand of foreign currency in the
international money market.
2. Assertion (A): In case of currency depreciation, more rupees are to be paid to buy
one US dollar.
Reason(R): Domestic currency (rupee) loses its value in relation to US dollar under
depreciation.

Choose the correct option:

1. Accommodating items are related to those transactions which:
a) are not determined by considerations of profit
b) are conditioned by the positive or negative BoP status
c) lead to increase or decrease in official reserves with RBI
d) all of these
2. Cause of BoP imbalance relates to:
a) autonomous items b) accommodating items
c) both (a) and (b) d) neither (a) nor (b)
3. Balance of trade is a part of:
a) Current account BoP b) capital account BoP
c) official reserves account d) none of these
4. Invisibles balance refers to:
a) Exports – Imports
b) Trade balance + Balance of non-factor services
c) Exports – Imports + Balance of factor services

Read the following case study carefully and answer the questions 1-6 on the basis
of the same:

Foreign Direct Investment (FDI) provides a more stable source of financing the CAD as
compared to external borrowings. During 2014 – 19, gross FDI to India has been robust as
compared to the previous five years; the trend has continued in 2019 – 20 as well. In the
first eight months of 2019-20, both gross and net FDI flows to the country have been more
than the flows received in corresponding period of 2018 – 19. Net FDI inflow in H1 of
2019–20 was also robust at US$ 7.3 billion as against an outflow of US$ 7.9 billion in H1 of
2018 -19.
1. External borrowing is a component of ___________ account.
a) current b) capital c) official reserve d) none of these
2. Foreign direct investment relates to:
a) Ownership of enterprises in the domestic economy by rest of the world.
b) Ownership of enterprises in rest of the world by the domestic residents.
c) Foreign institutional investment.
d) None of these
3. Current account deficit occurs when:
a) Foreign exchange receipts fall short of the foreign exchange payments relating to
only visible items of trade.
b) Foreign exchange receipts fall short of the foreign exchange payments relating to
only invisible items of trade.
c) Foreign exchange receipts fall short of the foreign exchange payments relating to
both visible and invisible items of trade.
d) None of these
4. Borrowing of rest of the world would be recorded as _____________ item in the
capital account of BoP.
a) debit b) credit c) zero d) none of these
5. Statement 1: Foreign direct investment is the investment by rest of the world in
shares and bonds of the domestic companies.
Statement 2: It relates to the ownership of enterprises (in the domestic economy)
by rest of the world.
Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and statement 2 is false.
d) Statement 2 is true and statement 1 is false.
6. Money sent by the NRIs to their families in India is to be treated as current
transfers. (True / False)