12 previous year UPSC Prelims questions on Indian Economy in the UPSC 2024 Prelims. Choose an option to see the answer and explanation.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
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UPSC 2024Indian Economy · Security Market in India
Q11. Consider the following: 1. Exchange-Traded Funds (ETF) 2. Motor vehicles 3. Currency swap Which of the above is/are considered financial instruments?
Explanation
A financial instrument is a contractual agreement that creates a financial asset for one party and a corresponding financial liability or equity instrument for another party. Options 1 and 3 are correct:
Exchange-Traded Funds (ETF) are considered financial instruments as they represent a portfolio of assets (stocks, bonds, or commodities) and are traded on stock exchanges. They are intangible assets that provide claims to future cash flows or ownership interests. A currency swap is a financial instrument used in international finance. It involves the exchange of principal and interest payments in different currencies between two parties, helping manage foreign exchange risks. Option 2 is incorrect: Motor vehicles are not financial instruments. They are physical assets used for transportation and do not represent any contractual claim to future cash flows or monetary value in financial markets.
UPSC 2024Indian Economy · Security Market in India
Q12. Consider the following statements: Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment. Statement-II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government. Which one of the following is correct in respect of the above statements?
Explanation
The United States government issues Treasury Bonds (T-Bonds) as a way to borrow money. These bonds are considered one of the safest investments globally because they are backed by the full faith and credit of the US government.
Statement I is incorrect: Even in a case of a default by the U.S. government, U.S. Treasury bondholders retain their legal right to payment. A default would generally cause delays or restructuring but would not cancel bondholder claims. The U.S. government remains legally obligated to repay its debts, and investors can seek legal remedies, though enforcement is complex for sovereign debt. If the government misses payments, both American and foreign bondholders can sue in U.S. courts, such as district courts or the U.S. Court of Federal Claims, to enforce their claims.
Statement II is correct: US Treasury Bonds are not backed by physical assets like gold, land, or commodities. Instead, their value rests on the trust and faith in the US government’s financial stability and its ability to repay debts through taxation and economic growth. The US dollar’s status as the world’s re-serve currency further reinforces this trust, but there are no tangible assets pledged against US debt.
Additional insight:
U.S. Treasury Bonds (T-Bonds) are long-term debt securities issued by the U.S. government with maturities of 20 to 30 years. They are considered low-risk investments as they are backed by the "full faith and credit" of the U.S. government. T-Bonds offer fixed interest payments semi-annually and are used for funding government operations, defense, and development projects. As of February 2025, the U.S. debt stands at approximately $36 trillion, equivalent to 124% of GDP. It arises from budget deficits when spending exceeds revenue. The debt is financed primarily through Treasury securities and is not backed by hard assets but by the government’s ability to tax and borrow. Persistent deficits, rising interest costs, and mandatory spending on programs like Social Security and Medicare pose long-term fiscal challenges.
Answer key for these questions
Q
UPSC year
Correct answer
11
2024
(d) 1 and 3 only
12
2024
(d) Statement-I is incorrect, but Statement-II is correct.
Frequently asked questions
How many previous year UPSC questions are there on Indian Economy?
This page covers 12 previous year UPSC Prelims GS Paper-I questions on Indian Economy in the UPSC 2024 Prelims, asked from 1996 to 2025. Each has the correct answer and an explanation.
How should I use previous year UPSC questions for Prelims?
Attempt each question first, then open the answer and read the explanation for every option. Repeat by chapter, and track which statements UPSC reuses across years. Previous year questions show the exam pattern and difficulty level.
Which years are covered for Indian Economy?
Questions on Indian Economy in the UPSC 2024 Prelims are available for 30 years, from 1996 to 2025. Use the Year filter to practise a single paper.
