Q221. In India, the responsibility of formulating the Fiscal Policy rests with which of the following entities?
Indian Economy: RAS Prelims MCQs
848 RAS Prelims practice MCQs on the Indian economy are on this page, in 10 chapters. They cover economic growth and development, the Human Development Index, monetary and fiscal policy and the Union Budget, fiscal federalism, agricultural development, industrial reforms and LPG, the service sector, energy and transport, skill development and employment, and social justice. Each question has an answer and an explanation.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
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Q222. Which of the following measures represents a contractionary fiscal policy?
Explanation
A contractionary stance involves reducing the government’s budget deficit to cool down an overheating economy or control inflation. This is achieved by cutting public spending, such as subsidies, and raising tax rates to reduce disposable income. These actions lower the overall demand in the economy. Unlike monetary policy changes, these measures directly impact the government’s own balance sheet and revenue.
Q223. Match the following policy instruments in List I with their respective policy types in List II.
| Instrument | Policy Type |
|---|---|
| A. Cash Reserve Ratio | i. Monetary Policy Instrument |
| B. Goods and Services Tax | ii. Fiscal Policy Instrument |
| C. Open Market Operations | iii. Monetary Policy Instrument |
| D. Public Debt Management | iv. Fiscal Policy Instrument |
Explanation
Monetary policy utilizes tools like the cash reserve ratio and open market operations to regulate liquidity and interest rates. Fiscal policy involves instruments such as the goods and services tax for revenue collection and public debt management for financing expenditures. Both sets of tools are used in coordination to achieve macroeconomic stability, though they are managed by completely different national authorities.
Q224. What is the most likely long-term effect of a persistently high fiscal deficit financed by continuous government borrowing from the domestic market?
Explanation
When the government borrows excessively from the domestic market, it competes with the private sector for available savings. This increased demand for funds leads to higher interest rates, making it more expensive for businesses to borrow and invest. This phenomenon reduces the overall capital available for private enterprise, potentially slowing down long-term economic growth and diminishing the nation’s total productive capacity.
Q225. An economy is facing a severe recession with high unemployment. Which combination of policies is most appropriate to combat this situation?
Explanation
To combat a recession, a dual approach of increasing the money supply and boosting government spending is most effective. Lowering interest rates encourages private borrowing and investment, while increased public expenditure and tax cuts stimulate aggregate demand directly. Together, these policies work to increase production, create employment opportunities, and restore economic growth during periods of significant slowdown and high unemployment.
Q226. Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R).
Assertion (A): Expansionary fiscal policy can sometimes lead to demand-pull inflation.
Reason (R): Increased government spending and tax cuts boost aggregate demand, which can outpace aggregate supply.
Assertion (A): Expansionary fiscal policy can sometimes lead to demand-pull inflation.
Reason (R): Increased government spending and tax cuts boost aggregate demand, which can outpace aggregate supply.
Explanation
Increasing government expenditure and reducing taxes significantly boosts the purchasing power of consumers. When this rise in aggregate demand occurs faster than the economy’s ability to produce goods and services, it leads to upward pressure on prices. This specific type of inflation occurs because the total spending in the economy exceeds the available supply, illustrating a common economic trade-off.
Q227. Identify the odd one out among the following items in the context of Capital Receipts of the Union Government.
Explanation
Capital receipts either create a liability for the government or reduce its existing assets. Examples include loan recoveries, disinvestment proceeds, and fresh borrowings. In contrast, dividends represent regular income earned from government investments in enterprises. These are classified as revenue receipts because they provide income without affecting the government’s asset or liability position, unlike the other mentioned capital-related financial transactions.
Q228. Arrange the following stages of the Union Budget passage in the Parliament in the correct chronological order:
I. Voting on Demands for Grants
II. Presentation of the Budget
III. Passing of Finance Bill
IV. General Discussion
V. Passing of Appropriation Bill
I. Voting on Demands for Grants
II. Presentation of the Budget
III. Passing of Finance Bill
IV. General Discussion
V. Passing of Appropriation Bill
Explanation
The legislative process begins with the presentation of the budget, followed by a general discussion among members of parliament. Subsequently, specific demands for grants are voted upon by the assembly. Once approved, the appropriation bill is passed to authorize spending, and finally, the finance bill is enacted to give legal effect to the government’s various taxation and revenue collection proposals.
Q229. A government receipt is classified as a ‘Revenue Receipt’ if it meets which of the following criteria?
Explanation
Receipts are categorized as revenue if they represent recurring income that does not result in a future repayment obligation or a decrease in the government’s wealth. Common examples include tax collections, interest income, and dividends. These funds are used for the day-to-day functioning of the administration and do not change the fundamental financial position or net worth of the state.
Q230. Consider the following statements regarding Capital Expenditure:
I. It leads to the creation of physical or financial assets.
II. It includes the repayment of principal on government loans.
III. It includes the payment of salaries and pensions to government employees.
Which of the above statements are correct?
I. It leads to the creation of physical or financial assets.
II. It includes the repayment of principal on government loans.
III. It includes the payment of salaries and pensions to government employees.
Which of the above statements are correct?
Explanation
Spending categorized as capital leads to the creation of long-term physical or financial assets, such as infrastructure or investments. It also includes payments made to reduce existing liabilities, like the repayment of loan principals. However, regular administrative costs like salaries and pensions are not included here; they are instead classified as revenue expenditure because they do not result in asset creation.Answer key for these questions
| Q | Correct answer |
|---|---|
| 221 | (d) The Ministry of Finance |
| 222 | (a) Reducing subsidies and increasing direct taxes |
| 223 | (a) A-i, B-ii, C-iii, D-iv |
| 224 | (a) Private investment crowding out due to higher interest rates |
| 225 | (d) Expansionary monetary policy and expansionary fiscal policy |
| 226 | (a) Both A and R are true and R is the correct explanation of A. |
| 227 | (c) Dividends received from Public Sector Undertakings |
| 228 | (a) II - IV - I - V - III |
| 229 | (a) It neither creates a liability nor reduces an asset |
| 230 | (a) I and II only |
Key facts from Indian Economy
- The RPSC syllabus lists economic concepts and the Indian economy as the first part of the Economy paper, followed by the economy of Rajasthan.
- Concept questions test definitions: nominal and real GDP, GNP and NDP, per capita income and the value-added method.
- Policy questions pair a tool with its effect, for example a rise in CRR reduces the lendable resources of banks.
- Scheme questions ask for the target group, ministry or year of schemes such as PMKVY, NAPS, PM SVANidhi and PM-SYM.
- Questions on Finance Commission and GST link the body to its Article, such as Article 280.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Indian Economy?
This page has 848 practice MCQs on Indian Economy. Each has the correct answer, and most have an explanation.
Which chapters does the Indian economy set cover?
Ten chapters: economic growth, development and sustainable development; measurement of development (HDI); monetary and fiscal policy and the Union Budget; fiscal federalism and the Finance Commission; agricultural development; industrial growth and LPG reforms; the service sector; energy, transport and communication; skill development and employment; and social justice and empowerment.
Is the Indian economy in the RAS Prelims syllabus?
Yes. RPSC lists Economic Concepts and the Indian Economy as the first part of the Economy paper. The second part covers the economy of Rajasthan, which is on its own page.
How should I revise economy for RAS Prelims?
Learn the definitions and the cause-and-effect chains first, then the schemes with their year, ministry and target group. Attempt each chapter, read every explanation and keep a one-line note for each scheme and body.