5.

ECONOMICS

Macroeconomics- Class 12th , NCERT

NCERT 11th Indian Economic Development

NCERT- Class 9thand 10th (for basics)

Indian Economy Ramesh Singh-Selective (Chapters on)

Introduction (GDP, GNP, growth etc.)

Evolution of the Indian economy

Banking

Inflation & Business Cycle

Agriculture

India and the Global Economy (include chapters relating to it)

Human development

Technology and environment

For understanding concepts refer to either of these:

Mrunal.org Economy Section

Khan Academy Macroeconomics videos

Investopedia University (also read basics of Microeconomics from here)

Srirams IAS Economics Notes

ECONOMICS STRATEGY
Print

PDF

Current Affairs

History

Geography

Polity

Economics

Culture

Environment

Science and Technology

ECONOMICS
(Economic and Social Development-Sustainable, Development, Poverty, Inclusion, Demographics, Social Sector
Initiatives, etc.)
Books/Sources to Refer ->
1. Weightage given since 2011
2. How to Prepare
3. Basic Economic and Indian Economy

3.1 Introduction to Economics

3.2 Growth and Development

3.3 Inflation and Business Cycle

3.4 Money and Banking Systems

3.5 Fiscal policy

o

3.5.1 Budget

3.5.2 Taxation

3.5.3 Planning

3.6 Market

3.7 Public Sector Units (PSUs)

3.8 External Sector/Foreign Trade

o

3.8.1 Balance of Payment (BoP)

3.8.2 Capital and Current Account Convertibility

3.8.3 Current Account Deficit (CAD)

3.8.4 Currency Exchange rate

3.8.4 Rupee appreciation, depreciation

3.8.4 Forex Reserves

3.9 International Economic Organisations

o

3.9.1 World Bank (WB), International Monetary Fund (IMF)

3.9.2 World Trade Organisation (WTO)

4.
5.
6.
7.

Economic Survey
Social Development, Poverty and Inclusion
Demographics
Social Sector initiatives

8. Previous Year Questions and Solutions

Economy may be daunting to some, but the questions are based on your conceptual understanding of
macroeconomics. No matter how many times you read and mug-up the data, you are bound to falter in the exam.
Conceptual clarity is what matters the most in Economics.
Weightage given to Economics (since 2011)

On an average around 14-15% weightage is given to Economics.

If your basic fundas of Economics is sound, then you will even be able to get all answers right in Prelims . So our
sincere advice to you is to invest more time in understanding the concepts and analyzing how one concept is linked
to another.

For Example:
If the interest rate is decreased in an economy, it will (2014)(a) decrease the
consumption expenditure in the economy
(b) increase the tax collection of the Government
(c) increase the investment expenditure in the economy
(d) increase the total savings in the economy
Solution (c)

Under which of the following circumstances may capital gains arise? (2012)
1. When there is an increase in the sales of a product2. When there is a. natural increase in the value of the property
owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity
Select the correct answer using the codes given below :
(a) 1 only
(b) 2 and 3 only
(c) 2 only
(d) 1, 2 and 3
Solution (b)

How to Study Economics?

Some of them have misconceptions that Economics is only about money. No its about choices. Choices or
decisions made based on the resource available (time, capability, money, interest etc.)
Decisions made in midst of alternatives at the National level is known as Macroeconomics (Government making a
decision to blend 10% Ethanol in petrol) and if the same choices/decisions are made at the individual level, it is
known as Micro-economics.
Economics has so much of relevance to our day-to-day lives. Be it the choice that you make to take-up this exam or
even choose or website IASbaba for your preparation. Its all about making choices suiting to your needs and
available resources.
This makes reading Economics enjoyable and meaningful !!

Once you get hold of this subject, it will take very less time to revise and also more accuracy can be achieved in the
exam.

Basic Economic and Indian Economy:

1.

Introduction to Economics:

Focus:
Understanding the basic concepts of:

MacroEconomics Poverty, Growth, Employment etc

Microeconomics decisions/choices made at a company, household or an individual level

Difference between Growth and Development; indicators used to measure.

Example: To measure Growth- GDP is used and for Development HDI (Human Development Index)
National Income Accounting Gross National Product (GNP), Gross Domestic Product (GDP), Gross

National Income (GNI), Factor cost, Market Price, Purchasing power parity(PPP), Per-Capita Income (PCI) a
general understanding on how they are calculated and what all factors go into their calculation
Example: GDP is calculated using either of the following 3 methods- production method, expenditure

method, income method.

Primary , Secondary, Tertiary Sectors what constitutes each sector? What are their contributions to

the GDP
Example: Primary sector covers agriculture and allied activities, mining . It contributes 13.7% to Indias

GDP

Capitalist, State, Mixed Economic System which type of Economic system India has adopted and

why?

Note: Dont just read definitions, analyze! For example: When do we use GDP for measurement of Growth and not
GNP? Which method is followed in India and why?
When we say why a particular method was adopted- it means that, one has to understand both positives and
negatives of the method.
Example: 2013 Previous Year Question

The national income of a country for a given period is equal to the:(a) total value of
goods and services produced by the nationals(b) sum of total consumption and investment

expenditure(c) sum of personal income of all individuals

(d) money value of final goods and services produced
Solution (a)

2011 Previous Year Question

A closed economy is an economy in which(a.) the money supply is fully controlled
(b.) deficit financing takes place
(c.) only exports take place
(d.) neither exports nor imports take place
Solution (d)

2.

Growth & Development

Focus:

Poverty concepts like Below Poverty line (BPL), Poverty Gap, Poverty estimates by National Sample
Survey Organisation (NSSO), which Institution in India decides on Poverty line- Planning Commission

Different Committees set-up to measure poverty, methodology used Alag committee, Lakadwala,
Suresh Tendulkar Committee, NC Saxena Committee, Rangarajan Committee A general understanding of how
each committee differed in their measurement.

Example: Rangarajan Committee was set-up by Planning Commission in 2012; Methodology used is
Monthly Expenditure of family of five. According to the estimates- poverty per day per person in urban area is
47 Rs and in rural area it is 32 Rs

Inequality how is it measured Gini co-efficient , Lorenz Curve; concepts like relative inequality, absolute
inequality.

Issues

with

employment,

different

types

of

unemployment

like

disguised

unemployment,

underemployment etc; Globalization and its impact on labour.

Demographic Dividend, Skill Development

Development Indicators from International organisations like HDI, MPI (Multiple Poverty Index),
Millennium Development Goals etc.
Note: Make a note of the Government Schemes, Committees related to growth, development, eradication of
Poverty, Employment, Labour issues etc. like MGNREGA, National Rural Livelihood Mission, Bharat Nirman etc.

Initiatives like Make in India, Innovation Council, Skill Development Initiative Scheme (SDIS)
Example: 2013 Previous Year Question
Disguised unemployment generally means (2013)(a) large number of people remain
unemployed
(b) alternative employment is not available
(c) marginal productivity of labour is zero
(d) productivity of workers is low
Solution (c)

Economic growth in country X will necessarily have to occur if (2013)(a) there is

technical progress in the world economy
(b) there is population growth in X
(c) there is capital formation in X
(d) the volume of trade grows in the world economy
Solution (c)

3.

Inflation and Business Cycle

Focus:
Inflation, Depression, Recession and related terms and concepts like deflation, disinflation, reflation,

stagflation, Philips curve

Types of Inflation based on the rate of growth of the prices creeping, trotting, galloping, hyper-inflation

Types of Inflation based on the causes Demand-pull, Cost-push, Structural, Speculation.

Impact of Inflation on Indian Economy, different stakeholders in the economy. Is a minimum inflation

necessary? If so why?
Inflation measurements like CPI, WPI, GDP deflator

Composition or what constitutes these indicators

Their merits and demerits

Which measurement is better indicator of inflation and why? Which index is used to measure
inflation in India currently?
Base year from which its calculated.

What is this Base year?

Why does Government change the Base Year?

What impact it has on the economic growth or inflation?

Example: In WPI there are totally 676 items, out of that 20% weightage is given to Food, 14% to
Power and Fuel, 66% to Manufactured goods. It does not include Services. Base year for WPI is 2010-11. It is
published by Ministry of Commerce and Industry

Role of Government and RBI in controlling inflation

Example: 2013 Prelims Question
Consider the following statements : (2013)1. Inflation benefits the debtors.
2. Inflation benefits the bond-holders.Which of the statements given above is/are
correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2Solution (a)

A rise in general level of prices may be caused by: (2013)1. an increase in the money
supply
2. a decrease in the aggregate level of output
3. an increase in the effective demandSelect the correct answer using the codes given
below.
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3Solution (d)

2011 Prelims Question

A rapid increase in the rate of inflation is sometimes attributed to the base
effect. What is base effect?(a.) It is the impact of drastic deficiency in supply due to
failure of crops
(b.) It is the impact of the surge in demand due to rapid economic growth
(c.) It is the impact of the price levels of previous year on the calculation of inflation rate

(d.) None of the statements (a), (b) and (c) given above is correct in this contextSolution (c)

4.

Money and Banking Systems

Focus:
Role and functions of RBI

Monetary Policy/measures taken by RBI like Bank rate, repo rate, reverse repo rate, Statutory Liquidity

Ratio (SLR), Cash reserve Ratio (CRR), Liquidity Adjustment Facility (LAF), Marginal Standing Facility (MSF)

Why are these measures taken?

What impact it has on the Supply of money, Inflation and the Economy?
Different types of Banks and their functioning Commercial Banks, RRBs, Development banks,

NABARD, Co-operative Banks, Development Banks, Merchant Banks, Non-Banking Financial Companys (NBFCs),
Regional Rural Banks (RRBs) etc.

Functions of these Banks, to whom do they lend?

How are these Banks regulated? Concepts like priority sector lending

Example: NBFCs are regulated by RBI, unlike the normal banks, NBFC cannot accept demand
deposits (DD); NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself.
Banking reforms like Bank Nationalisation (1969, 1980) Basel Norms etc.

Why were/are these reforms needed?

What was/is the Purpose of these reforms

Understand Key-Terms Financial Inclusion, Fiscal Consolidation, Narrow Banking, Non-Performing

Assets, Shadow Banks, Weak Bank, Core Banking, Bank Run, Priority Sector lending, Capital to Risk Weighted
Assets (CRAR) etc., and other related concepts related to Banking what steps have been taken by the
Government and RBI in this regard.
Steps taken by government with regard to Financial Inclusion.

Example: Introduction of Business Correspondent model in rural areas or Woman only banks, Jan
Dan Yojana, Micro-finance, Mudra Bank etc

Recent Committees setup with regard to Banking Reforms and its important recommendations

Few Examples from Previous Years Prelims Questions Paper

If the interest rate is decreased in an economy, it will
consumption expenditure in the economy
B.
increase the tax collection of the Government
C.
increase the investment expenditure in the economy
D.
increase the total savings in the economySolution (c)

(2014)A.

decrease the

The Reserve Bank of India regulates the commercial banks in matters of (2013)1.
liquidity of assets
2. branch expansion
3. merger of banks
4. winding-up of banksSelect the correct answer using the codes given below.
(a) 1 and 4 only
(b) 2, 3 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2, 3 and 4Solution (d)

What is/are the facility/facilities the beneficiaries can get from the services of
Business Correspondent (Bank Saathi) in branchless areas? (2014)1. It enables the
beneficiaries to draw their subsidies and social security benefits in their villages.
2. It enables the beneficiaries in the rural areas to make deposits and withdrawals.Select the
correct answer using the code given below.A.1 only
B.2 only
C.Both 1 and 2
D.Neither 1 nor 2
Solution (c

ECONOMICS STRATEGY-2
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Current Affairs

History

Geography

Polity

Economics

Culture

Environment

Science and Technology

5. Fiscal Policy:
A. Fiscal Measures
Focus:

Fiscal policy, Finance Commission (14th FC and its important provisions)

Fiscal Responsibility and Budgetary Management (FRBM) Act, other actions taken by the Finance Ministry
(Government), Disinvestment of Public Sector Units (PSUs) to improve the financial health of the Economy

What is Financial Stability? Steps taken by Government in this regard

Financial Sector Reforms brought about by the government in these sectors -Banking, Insurance,
Provident Fund (PF).
Example: In 2015, Raising of Foreign Direct Investment (FDI) limit in defence to 49%, In Railway infrastructure
to 100% etc.

Financial Regulators Reserve Bank of India(RBI), Securities and Exchange Board of India(SEBI),
Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory and Development Authority
(PFRDA) powers, functions, jurisdiction issues between the regulators

Financial Stability and Development Council objective and functions

Economic Reforms concepts related to privatization and globalization, SEZs etc.

Sources of financial resources for Government Tax and Non-tax revenue (Foreign aid, Disinvestment
from PSUs etc), Disinvestment, Borrowings (internal and external), User Charges.

B. Budget
Focus:

Components of Budget, Revenue and Capital receipts and expenditure

What constitutes Plan and Non plan expenditure? Difference between them.

Key Terms like pubic debt, External debt, Internal debt, Revenue Deficit, Primary Deficit, deficit financing,
fiscal consolidation Zero-based Budgeting

Steps taken by the government to bring down the Fiscal Deficit

Example: FRBM Act
Example (2014 Prelims Questions Paper):

With reference to Union Budget, which of the following, is/are covered under NonPlan Expenditure?
1.
2.
3.
4.

Defense expenditure
Interest payments
Salaries and pensions
Subsidies

Select the correct answer using the code given below.

A.

1 only

B.

2 and 3 only

C.

1, 2, 3 and 4

D.

None

Solution (c )

Example (2013 Prelims Questions Paper):

In India, deficit financing is used for raising resources for
(a) economic development
(b) redemption of public debt
(c) adjusting the balance of payments
(d) reducing the foreign debt
Solution (a)

C. Taxation
Focus:

Direct, Indirect tax and other Taxes like Pigovian tax, Ad Valorem tax, Tobin Tax, Difference between a
Cess and a Surcharge

Direct Tax like Corporate Tax, Income Tax, Wealth Tax, Stock Market transactions

Indirect Tax like Excise Tax, Customs, VAT, Service tax

Taxation Reforms Direct Tax Code (DTC), General Anti-Avoidance Rule (GAAR),Goods and Service
Tax (GST).
Example: With regard to GST Purpose; advantages and disadvatages of GST; issues with regard to
implementation of GST;

Understand the basic concepts like what is Tax Base, Progressive taxation,Tax Expenditure, Tax
avoidance, Tax evasion, Tax Havens, Tax elasticity, Tax Buoyancy, Laffer curve, Crowding-out.
Example (2014 Prelims Questions Paper):
The sales tax you pay while purchasing a toothpaste is a
a.
b.
c.
d.

tax imposed by the Central Government.

tax imposed by the Central Government but collected by the State Government
tax imposed by the State Government but collected by the Central Government
tax imposed and collected by the State Government

Solution (d)

2011 Prelims Questions Paper:

Which one of the following is not a feature of Value Added Tax?
(a.) It is a multi-point destination-based system of taxation
(b.) It is a tax levied on value addition at each stage of transaction in the production-distribution chain
(c.) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer
(d.) It is basically a subject of the Central Government and the State Governments are only a facilitator for its
successful implementation
Solution (c)

D. Planning
Focus:

Institutions involved in Planning in India

o

A general idea on how planning has evolved over the years (since Independence)

How planning takes place at the State and National level

New institution Niti Ayog

o

Its purpose

Why was Planning Commission dissolved?

Issues between Planning Commission and Finance Commission

Note: Make a note on the latest committees set-up with regard to Fiscal and Economic Reformslike Financial
Sector Legislative Reforms Commission (FSLRC), Financial Action Task Force(FATF), Financial Stability and
Development Council (FSDC), Nachiket mor committee etc.
Example (2014 Prelims Questions Paper):
The main objective of the 12th Five-Year Plan is
A.
B.
C.
D.

inclusive growth and poverty reductions

inclusive and sustainable growth
sustainable and inclusive growth to reduce unemployment
Faster, sustainable and more inclusive growth.

Solution (d)

6. Market:
Focus:

Money Market Treasury Bills, Commercial paper, Certificate of Deposit, Call Money

Capital Market Government Securities (G-Secs)

o
o

Difference between Money and Capital market

A general idea about Stock-exchanges in India BSE, NSE; Nifty (Abroad); What is SENSEX- what
does it indicate?

Regulatory Bodies SEBI, IRDA , PFRDA their power, functions in regulating Market, Mutual funds,
Pension Fund etc.; reforms brought about by the Regulatory Bodies

Foreign Direct Investment (FDIs) and Foreign Institutional Investors (FIIs)

o

On what basis are they classified as FDIs and FIIs?

Differences between them

Why are FIIs called hot money or Portfolio investment?

Which type of investment would be better for India?

Other investments such as Qualified Institutional Placement (QIPs) Angel investors, Venture
Capitals, Foreign institutional investors, Mutual Funds, Public Financial institutions

Have a Basic understanding of these terms Primary market, Secondary market, Bull and Bear (what
does it symbolize), Derivatives, Futures, Bonds, Debentures partially and fully convertible , Participatory Notes,
Hedge Funds, Blue chip shares, Market depth.

Mechanisms to raise money in the Capital Market in India by Foreign countries- Indian Depository
Receipts (IDRs); Similarly for an Indian company to raise money in the Foreign market Global Depository
Receipts (GDRs) and in America it is known as American Depository Receipts (ADRs)
Example (2014 Prelims Question)
What does venture capital mean?
A.
B.
C.
D.

A short-term capital provided to industries

A long-term start-up capital provided to new entrepreneurs
Funds provided to industries at times of incurring losses
Funds provided for replacement and renovation of industries

Solution (b)

2012 Prelims Question Paper

Which of the following would include Foreign Direct Investment in India?
1. Subsidiaries of companies in India
2. Majority foreign equity holding in Indian companies
3. Companies exclusively financed by foreign companies
4. Portfolio investment
Select the correct answer using the codes given below :
(a) 1, 2, 3 and 4
(b) 2 and 4 only
(c) 1 and 3 only
(d) 1, 2 and 3 only
Solution (d)

7. Public Sector Public Sector Units (PSUs)

Focus:

Organisational Structure of PSUs Departmental Undertakings, Statutory Corporations, Control

Boards, Co-operative Societies, Companies registered under the Companies Act 1956

Purpose/Objectives of PSUs

Reforms post Liberalisation, Privatization, Globalisation (LPG) era- Disinvestment, Memorandum of

Understanding (MOUs), Miniratnas, Navaratna, Maharatna, New Companies Act, 2013, Corporate Social
Responsibility (CSR)

What is Corporate Governance? What are its Objectives?

Industry:
A general idea about Industrial Policies in India

Medium and Small-Scale Enterprises (MSMEs ), Small-Scale Industries (SSI), Village and Cottage

Industries (VCI)- On what basis are they classified so

What measures are taken by Government to revive these industries?

Example: (2011 Prelims Question)

Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)?
1. The Government intends to use the revenue earned-from the disinvestment mainly to pay back the external debt.
2. The Government no longer intends to retain the management control of the CPSEs.
Which of the statements given above is/are correct?
(a.) I only
(b.) 2 only
(c.) Both 1 and 2
(d.) Neither 1 nor 2
Solution (d)

ECONOMICS STRATEGY-3
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Current Affairs

History

Geography

Polity

Economics

Culture

Environment

Science and Technology

8. External Sector/Foreign Trade

Focus:

Indias Foreign Policy recent initiatives taken

Balance of Payment (BoP)

o

What constitutes BoP?

What do you understand by Invisibles? How does it affect BoP?

External Commercial Borrowings (ECB)

o

What does it constitute, what is it meant for?

Who regulates it?

Who borrows from it? Example: Corporate sector , Government

Capital and Current Account Convertibility India has full Current Account Convertibility but when it
comes to Capital Account Convertibility, it is only partial. Why?

A general idea about MRTP Act, 1969; FERA, 1973; FEMA, 1999 this will help you in understanding
the changes made to capital account convertibility and why India is yet to go for full convertibility and
what is the present status

Current Account Deficit (CAD)

o

What is CAD?

Who reports CAD?

Why India has huge CAD? Is a minimum CAD necessary? What are the measures taken by India to

reduce CAD?

Rupee appreciation, depreciation

o

How is Rupee value determined?

How and why does Rupee appreciate or depreciate?

Its impact on domestic and external market? On imports and exports.

What measures does RBI take when rupee appreciates or depreciates? How does it impact Forex

o
Reserves?

Difference between Depreciation and Devaluation of currency (in Indian rupee) Why
does a country devaluate its currency?

Currency Exchange rate

o

How is the currency exchange rate determined?

Who determines it ?

Exchange rate interms of Purchasing power parity (PPP).

What is Nominal Effective Exchange Rate (NEER), Real Effective Exchange Rate (REER)?

Forex Reserves
o

What does it constitute?

What is the use of having Forex Reserve?

Why do we need more Forex Reserves?

How can we accumulate more Forex reserves?

Concepts like Trade deficits, Elasticity of Demand, Savings, Investment, J-curve effect

Comprehensive

Economic

Partnership

Agreement

(CEPA),

Comprehensive

Economic

Cooperation Agreement (CECA)

o

Differences between the two agreements

How is it different from Free Trade Agreement (FTA)?

Benefits that Indian will have with these agreements

A general awareness on the countries with which India has signed these agreements recently and
what are the issues involved and benefits from the same

Note: Issues like GAAR, Euro Zone Crisis, Gold imports or any issue that you come across in the newspaper,
make a note of it.

Example: (2014 Prelims Questions Paper):

With reference to Balance of Payments, which of the following
constitutes/constitute the Current Account?1.
Balance of trade
2.
Foreign assets
3.
Balance of invisibles
4.
Special Drawing Right

Select the correct answer using the code given below.

A.

1 only

B.

2 and 3

C.

1 and 3

D.

1, 2 and 4

Solution (c)

(2013 Prelims Questions Paper):

Which one of the following groups of items is included in Indias foreign-exchange reserves?
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
(b) Foreign-currency assets, gold holdings of the RBI and SDRs
(c) Foreign-currency assets, loans from the World Bank and SDRs
(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Solution (b)

Which of the following constitute Capital Account? (2013)

1. Foreign Loans
2. Foreign Direct Investment
3. Private Remittances
4. Portfolio Investment
Select the correct answer using the codes given below.
(a) 1, 2 and 3
(b) 1, 2 and 4
(c) 2, 3 and 4
(d) 1, 3 and 4
Solution (b)

(2012 Prelims Questions Paper):

Consider the following statements:The price of any currency in international market is decided by the
1. World Bank
2. demand for goods/services provided by the country concerned
3. stability of the government of the concerned country
4. economic potential of the country in question
Which of the statements given above are correct?
(a) 1, 2, 3 and 4

(b) 2 and 3 only

(c) 3 and 4 only
(d) 1 and 4 only
Solution (b)

9. International Economic Organisations

Focus:

Bretton Wood Twins- World Bank, IMF

o

A general awareness on- When was it started? Where is its Headquarters?

What is the purpose? To whom do they lend money to?

How does It function?

Reports published by WB and IMF

Recently joined members of WB and IMF

World bank and World bank Groups

Relevance of IMF and WB to the developing countries (especially India)

Example: IMF was setup in 1944, its HQ- Washington, USA. Purpose- to facilitate balanced growth of
International trade, Exchange rate, to overcome Balance of Payment crisis and it lends only to member countries
and not for a specific purpose, unlike WB. Functioning- Each member is assigned a quota (based on size of the
economy), which indicates the voting power, access to financing, the amount a member is obliged to provide to
the IMF

What are SDRs? how does it help member countries?

World Trade Organisation (WTO)

o

A general idea on how WTO came into being and what was the set-up before WTO

Difference between General Agreement on tariffs and Trade (GATT) and WTO

What is the objective of WTO? How does it function (example- WTO works on the principle one
country one vote, unlike WB or IMF)

Recently joined members of WTO

Doha round why is Doha round stalled? Issues between developed and developing countries

WTO and India how has it helped India, if so in what way? what are the issues- is it a boon or a bane to
India?

WTO principles Most Favoured Nation (MFN)- non-discriminatory Trade, General system of Preference
(GSP) for developing countries and Preferential Trade Agreement (PTA), Free Trade Agreement (FTA) for
economics integration

Stages in economic integration PTA > FTA > Customs Union > Monetary Union

Others Safeguard mechanisms Safeguard Mechanisms, Sanitary and Phytosanitary agreement (SPS),
Technical Barriers to Trade (TBT)

WTO agreements

1.

Agreement on Agriculture(AoA) Domestic support (Green Box, Amber Box, Blue Box), Export
subsidies, Market access

2.

Agreement on TRIPS and Patent Issues

o

Make a note of the current issues related to Patent;

Copyrights, Trademark, Industrial Design right for what type of products are each given
Example: Copyrights for creative and artistic work, whereas Patents for inventions

TRIPS agreement and Safeguards Parallel importation, Compulsory Licensing

Geographical indicators significance; to what products and for whom are they granted to? A general
awareness on the latest products which have been granted the status

3.

General Agreement on Trade in Services (GATS)

Difference between Protectionism and Import Substitution

instruments of protectionism- tariffs, import quotas, administrative barriers, anti-dumping duties, direct or
export subsidies, exchange rate manipulation

A general idea about Anti-Counterfeiting Trade Agreement (ACTA) by World Intellectual Property
Organisation (WIPO), Non-Agricultural Market Access (NAMA) group, NAMA 11

Regional trade agreements and Regional Groupings like ASEAN FTA, SAFTA, MERCOSUR, BRICS,
SAARC, The Asia-Pacific Economic Cooperation (APEC), Trans-Pacific Partnership (TPP), G20 etc.
o

their objectives

recent summits especially where India is a major player in the grouping

recent initiatives undertaken in the summits

how do these initiatives help India?

Example: BRICS (Brazil, Russia, India, China and South Africa) latest summit (2014) was held in Brazil. Here,
they came up with an initiative to create US$100 billion New Development Bank (NDB). NDB is seen as an
alternative to the existing US-dominated World Bank and IMF. The bank is set up to foster greater financial and
development cooperation among the five emerging markets. Unlike the World Bank, which assigns votes based
on capital share, in the New Development Bank each participant country will be assigned one vote, and none of
the countries will have veto power.

Note: Make a note of the International Economic organisations to which India is not a member of; and on
Asian Development Bank (ADB), G4.

Example (2014 Prelims Questions Paper):

Which of the following organizations brings out the publication known as World
Economic Outlook?
A.

The International Monetary Fund

B.

The United Nations Development Programme

C.

The World Economic Forum

D.

The World Bank

Solution (a)

10. Economic Survey

Focus:
Make note of the Key terms and their meaning, especially the new ones. Since UPSC has the knack of picking up
specific terms from the Economic Survey in both Prelims and Mains Exam.

2012 Prelims Question

In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined
weight of 37-90%. Which of the following are among those Eight Core Industries?
1. Cement

2. Fertilizers
3. Natural gas
4. Refinery products
5. Textiles
Select the correct answer using the codes given below :
(a) 1 and 5 only
(b) 2, 3 and 4 only
(c) 1, 2, 3 and 4 only
(d) 1, 2, 3, 4 and 5
Solution (c)

Note : Economic Terms Inflation, Recession, Depression, Balance of Payment, Financial Inclusion, Fiscal
Consolidation, Deficit Financing, Overheated Economy, Fiscal drag, Fiscal Neutrality, Giffen goods etc. Basic
understanding of the key terms is important.

11. Social Development, Poverty and Inclusion:

This is a dynamic area as questions will be mostly related to recent developments and programs and policies of the
government to address issues related to poverty, inclusion, growth and development. It has a wider perspective and
also is linked with the current events.
Example: Malnutrition- reasons associated with it, Poverty Indexes like Multi-poverty Index, committees set up like
Rangarajan committees estimate of Poverty, BPL, APL, Income gap, Jan Dan Yojna etc.

12. Demographics:
This section overlaps with Human geography. Statistical data from Economic Survey will be helpful here like
population, working age of the population, sex-ratio, literacy, Maternal Mortality Rate (MMR), Infant Mortality Rate
(IMR) etc

What are the issues (Ex: low literacy ),

Measures taken by the government in this regard.

13. Social Sector initiatives:

This part is already covered under Public Policy & Rights issue under Polity.

Basic Economic and Indian Economy: Social Development, Poverty and Inclusion: Prelims Questions
and Solutions

India has experienced persistent and high food inflation in the recent past. What could be the
reasons?(2011)
1.

Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food
grains has steadily decreased in the last five years by about 30%.

2.

As a consequence of increasing incomes, the consumption patterns of the% people have undergone a
significant change.

3.

The food supply chain has structural constraints.

Which of the statements given above1 are correct?

(a.) 1 and 2 only
(b.) 2 and 3 only
(c.) 1 and 3 only
(d.) 1, 2 and 3
Solution (b)

In terms of economy, the visit by foreign nationals to witness the XIX Common Wealth Games in India
amounted to(2011)
(a.) Export
(b.) Import
(c.) Production
(d.)Consumption
Solution (a)

Which one of the following statements appropriately describes the fiscal stimulus?(2011)
(a.) It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet
the demand surge caused by rapid economic growth
(b.) It is an intense affirmative action of the Government to boost economic activity in the country
(c.) It is Governments intensive action on financial institutions to ensure disbursement of loans to agriculture and
allied sectors to promote greater food production and contain food inflation
(d.) It is an extreme affirmative action by the Government to pursue its policy of financial inclusion
Solution (b)

Consider the following actions which the Government can take:

1.

Devaluing the domestic currency.

2.

Reduction in the export subsidy.

3.

Adopting suitable policies which attract greater FDI and more funds from FIIs.

Which of the above action/actions can help in reducing the current account deficit?
(a.) 1 and 2
(b.) 2 and 3
(c.) 3 only
(d.) 1 and 3
Solution (a)

A rapid increase in the rate of inflation is sometimes attributed to the base effect. What is base
effect?(2011)
(a.) It is the impact of drastic deficiency in supply due to failure of crops
(b.) It is the impact of the surge in demand due to rapid economic growth
(c.) It is the impact of the price levels of previous year on the calculation of inflation rate
(d.)None of the statements (a), (b) and (c) given above is correct in this context
Solution (c)

Why is the offering of teaser loans by commercial banks a cause of economic concern?(2011)
1.

The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the
risk of defaulters in future.

2.

In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or
export units.

Which of the statements given above is/are correct?

(a.) 1 only
(b.) 2 only
(c.) Both 1 and 2
(d.) Neither 1 nor 2
Solution (c)

In the context of Indian economy, consider the following statements :(2011)

1.

The growth rate of GDP has steadily increased in the last five years.

2.

The growth rate in per capita income has steadily increased in the last five years.

Which of the statements given above is/are correct?

(a.) 1 only
(b.) 2 only
(c.) Both 1 and 2
(d.) Neither 1 nor 2
Solution (b)

In India, which of the following have the highest share in the disbursement of credit to agriculture and
allied activities?(2011)
(a.) Commercial Banks
(b.) Cooperative Banks
(c.) Regional Rural Banks
(d.) Microfinance Institutions
Solution (a)
Economic growth is usually coupled with (2011)
(a.) Deflation
(b.) Inflation
(c.) Stagflation
(d.) Hyperinflation
Solution (b)

The lowering of Bank Rate by the Reserve Bank of India leads to (2011)
(a.) More liquidity in the market
(b.) Less liquidity in the market
(c.) No change in the liquidity in the market
(d.) Mobilization of more deposits by commercial banks
Solution (a)

Which one of the following is not a feature of Value Added Tax? (2011)
(a.) It is a multi-point destination-based system of taxation
(b.) It is a tax levied on value addition at each stage of transaction in the production-distribution chain
(c.) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer
(d.) It is basically a subject of the Central Government and the State Governments are only a facilitator for its
successful implementation
Solution (c)

A closed economy is an economy in which (2011)

(a.) the money supply is fully controlled
(b.) deficit financing takes place

(c.) only exports take place

(d.) neither exports nor imports take place
Solution (d)
Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment
in a country. Which one of the following statements best represents an important difference between
the two? (2011)
(a.) FII helps bring better management skills and technology, while FDI only brings in capital
(b.) FII helps in increasing capital availability in general, while FDI only targets specific sectors
(c.) FDI flows only into the secondary market, while FII targets primary market
(d.) FII is considered to be more stable than FDI
Solution (b)

Microfinance is the provision of financial services to people of low-income groups. This includes both
the consumers and the self-employed. The service/services rendered under micro-finance is/are:
(2011)
1.

Credit facilities

2.

Savings facilities

3.

Insurance facilities

4.

Fund Transfer facilities

Select the correct answer using the codes given below the lists:
(a.) 1 only
(b.) 1 and 4 only
(c.) 2 and 3 only
(d.) 1, 2, 3 and 4
Solution (d)

Which of the following can aid in furthering the Governments objective of inclusive growth? (2011)
1.

Promoting Self-Help Groups

2.

Promoting Micro, Small and Medium Enterprises

3.

Implementing the Right to Education Act

Select the correct answer using the codes given below:

(a.) 1 only
(b.) 1 and 2 only
(c.) 2 and 3 only

(d.) 1, 2 and 3
Solution (d)

Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises
(CPSEs)? (2011)
1.

2.

The Government intends to use the revenue earned-from the disinvestment mainly to pay back the
external debt.
The Government no longer intends to retain the management control of the CPSEs.

Which of the statements given above is/are correct?

(a.) I only
(b.) 2 only
(c.) Both 1 and 2
(d.) Neither 1 nor 2
Solution (d)

2012 UPSC Prelims Questions and Solutions

The Reserve Bank of India (RBI) acts as a bankers bank. This would imply which of the
following? (2012)
1.

Other banks retain their deposits with the RBI.

2.

The RBI lends funds to the commercial banks in times of need.

3.

The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below :

(a) 2 and 3 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Solution (d)

Under which of the following circumstances may capital gains arise? (2012)
1.

When there is an increase in the sales of a product

2.

When there is a. natural increase in the value of the property owned

3.

When you purchase a painting and there is a growth in its value due to increase in its popularity

Select the correct answer using the codes given below :

(a) 1 only
(b) 2 and 3 only
(c) 2 only
(d) 1, 2 and 3
Solution (b)

Which of the following measures would result in an increase in the money supply in the economy?
(2012)
1.

Purchase of government securities from the public by the Central Bank

2.

Deposit of currency in commercial banks by the public

3.

Borrowing by the government from the Central Bank

4.

Sale of government securities to the public by the Central Bank

Select the correct answer using the codes given below :

(a) 1 only
(b) 2 and 4 only
(c) 1 and 3
(d) 2, 3 and 4
Solution (c)

Which of the following would include Foreign Direct Investment in India? (2012)
1.

Subsidiaries of companies in India

2.

Majority foreign equity holding in Indian companies

3.

Companies exclusively financed by foreign companies

4.

Portfolio investment

Select the correct answer using the codes given below :

(a) 1, 2, 3 and 4
(b) 2 and 4 only
(c) 1 and 3 only
(d) 1, 2 and 3 only
Solution (d)

Consider the following statements: (2012)

The price of any currency in international market is decided by the

1.

World Bank

2.

demand for goods/services provided by the country concerned

3.

stability of the government of the concerned country

4.

economic potential of the country in question

Which of the statements given above are correct?

(a) 1, 2, 3 and 4
(b) 2 and 3 only
(c) 3 and 4 only
(d) 1 and 4 only
Solution (b)

The basic aim of Lead Bank Scheme is that: (2012)

(a) big banks should try to open offices in each district
(b) there should be stiff competition among the various nationalized banks
(c) individual banks should adopt particular districts for intensive development
(d) all the banks should make intensive efforts to mobilize deposits
Solution (c)

In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a
combined weight of 37-90%. Which of the following are among those Eight Core Industries? (2012)
1.

Cement

2.

Fertilizers

3.

Natural gas

4.

Refinery products

5.

Textiles

Select the correct answer using the codes given below :

(a) 1 and 5 only
(b) 2, 3 and 4 only
(c) 1, 2, 3 and 4 only
(d) 1, 2, 3, 4 and 5
Solution (c)

The balance of payments of a country is a systematic record of (2012)

(a) all import and transactions of a during a given period normally a year
(b) goods exported from a country during a year
(c) economic transaction between the government of one country to another
(d) capital movements from one country to another
Solution (a)

The Reserve Bank of India regulates the commercial banks in matters of (2013)
1.

liquidity of assets

2.

branch expansion

3.

merger of banks

4.

winding-up of banks

Select the correct answer using the codes given below.

(a) 1 and 4 only
(b) 2, 3 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2, 3 and 4
Solution (d)

An increase in the Bank Rate generally indicates that the: (2013)

(a) market rate of interest is likely to fall
(b) Central Bank is no longer making loans to commercial banks
(c) Central Bank is following an easy money policy
(d) Central Bank is following a tight money policy
Solution (d)

In India, deficit financing is used for raising resources for (2013)

(a) economic development
(b) redemption of public debt
(c) adjusting the balance of payments
(d) reducing the foreign debt
Solution (a)

Which of the following constitute Capital Account? (2013)

1.

Foreign Loans

2.

Foreign Direct Investment

3.

Private Remittances

4.

Portfolio Investment

Select the correct answer using the codes given below.

(a) 1, 2 and 3
(b) 1, 2 and 4
(c) 2, 3 and 4
(d) 1, 3 and 4
Solution (b)

Consider the following statements : (2013)

1.

Inflation benefits the debtors.

2.

Inflation benefits the bond-holders.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Solution (a)

Disguised unemployment generally means (2013)

(a) large number of people remain unemployed
(b) alternative employment is not available
(c) marginal productivity of labour is zero
(d) productivity of workers is low
Solution (c)

Consider the following liquid assets: (2013)

1.Demand deposits with the banks
2.Time deposits with the banks
3.Savings deposits with the banks
4.Currency

The correct sequence of these decreasing order of Liquidity is

(a) 1-4-3-2
(b) 4-3-2-1
(c) 2-3-1-4
(d) 4-1-3-2
Solution (d)

In the context of Indian economy,Open Market Operations refers to: (2013)

(a) borrowing by scheduled banks from the RBI
(b) lending by commercial banks to industry and trade
(c) purchase and sale of government securities by the RBI
(d) None of the above
Solution (c)

Priority Sector Lending by banks in India constitutes the lending to: (2013)
(a) agriculture
(b) micro and small enterprises
(c) weaker sections
(d) All of the above
Solution (d)

A rise in general level of prices may be caused by: (2013)

1.

an increase in the money supply

2.

a decrease in the aggregate level of output

3.

an increase in the effective demand

Select the correct answer using the codes given below.

(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
Solution (d)

Which one of the following groups of items is included in Indias foreign-exchange reserves? (2013)
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
(b) Foreign-currency assets, gold holdings of the RBI and SDRs
(c) Foreign-currency assets, loans from the World Bank and SDRs

(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Solution (b)

Which one of the following is likely to be the most inflationary in its effect? (2013)
(a) Repayment of public debt
(b) Borrowing from the public to finance a budget deficit
(c) Borrowing from banks to finance a budget deficit
(d) Creating new money to finance a budget deficit
Solution (d)

Supply of money remaining the same when there is an increase in demand for money, there will
be: (2013)
(a) a fall in the level of prices
(b) an increase in the rate of interest
(c) a decrease in the rate of interest
(d) an increase in the level of income and employment
Solution (b)

Economic growth in country X will necessarily have to occur if (2013)

(a) there is technical progress in the world economy
(b) there is population growth in X
(c) there is capital formation in X
(d) the volume of trade grows in the world economy
Solution (c)

The national income of a country for a given period is equal to the: (2013)
(a) total value of goods and services produced by the nationals
(b) sum of total consumption and investment expenditure
(c) sum of personal income of all individuals
(d) money value of final goods and services produced
Solution (a)

Which of the following grants/ grant direct credit assistance to rural households? (2013)
1.

Regional Rural Banks

2.

National Bank for Agriculture and Rural Development

3.

Land Development Banks

Select the correct answer using the codes given below:

(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Solution (c)

The terms Marginal Standing Facility Rate and Net Demand and Time Liabilities, sometimes
appearing in news, are used in relation to (2014)
1.

banking operations

2.

communication networking

3.

military strategies

4.

supply and demand of agricultural products

Solution (a)

What is/are the facility/facilities the beneficiaries can get from the services of Business Correspondent
(Bank Saathi) in branchless areas?(2014)
1.

It enables the beneficiaries to draw their subsidies and social security benefits in their villages.

2.

It enables the beneficiaries in the rural areas to make deposits and withdrawals.

Select the correct answer using the code given below.

1.

1 only

2.

2 only

3.

Both 1 and 2

4.

Neither 1 nor 2

Solution (c)

If the interest rate is decreased in an economy, it will (2014)

1.

decrease the consumption expenditure in the economy

2.

increase the tax collection of the Government

3.

increase the investment expenditure in the economy

4.

increase the total savings in the economy

Solution (3)

In the context of Indian economy which of the following is/are the purpose/purposes of Statutory
Reserve Requirements?
1.

To enable the Central Bank to control the amount of advances the banks can create

2.

To make the peoples deposits with banks safe and liquid

3.

To prevent the commercial banks from making excessive profits

4.

To force the banks to have sufficient vault cash to meet their day-to-day requirements

Select the correct answer using the code given below.

1.

1 only

2.

1 and 2 only

3.

2 and 3 only

4.

1, 2, 3 and 4

Solution (b)

If the interest rate is decreased in an economy, it will

1.

decrease the consumption expenditure in the economy

2.

increase the tax collection of the Government

3.

increase the investment expenditure in the economy

4.

increase the total savings in the economy

Solution (c)

With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?
1.

Defense -expenditure

2.

Interest payments

3.

Salaries and pensions

4.

Subsidies

Select the correct answer using the code given below.

1.

1 only

2.

2 and 3 only

3.

1, 2, 3 and 4

4.

None

Solution (c)

The sales tax you pay while purchasing a toothpaste is a

1.

tax imposed by the Central Government.

2.

tax imposed by the Central Government but collected by the State Government

3.

tax imposed by the State Government but collected by the Central Government

4.

tax imposed and collected by the State Government

Solution (d)

The main objective of the 12th Five-Year Plan is

1.

inclusive growth and poverty reductions

2.

inclusive and sustainable growth

3.

sustainable and inclusive growth to reduce unemployment

4.

Faster, sustainable and more inclusive growth.

Solution (d)

What does venture capital mean?

1.

A short-term capital provided to industries

2.

A long-term start-up capital provided to new entrepreneurs

3.

Funds provided to industries at times of incurring losses

4.

Funds provided for replacement and renovation of industries

Solution (b)

With reference to Balance of Payments, which of the following constitutes/constitute the Current
Account?
1.

Balance of trade

2.

Foreign assets

3.

Balance of invisibles

4.

Special Drawing Right

Select the correct answer using the code given below.

1.

1 only

2.

2 and 3

3.

1 and 3

4.

1, 2 and 4

Solution (c)

Which of the following organizations brings out the publication known as World Economic Outlook?
1.

The International Monetary Fund

2.

The United Nations Development Programme

3.

The World Economic Forum

4.

The World Bank

Solution (a)

Demographics:

India is regarded as a country with Demographic Dividend. This is due to: (2011)
(a.) Its high population in the age group below 15 years
(b.) Its high population in the age group of 15-64 years
(c.) Its high population in the age group above 65 years
(d.) Its high total population
Solution (b)

Consider the following specific stages of demographic transition associated with economic
development : (2012)
1.

Low birthrate with low death rate

2.

High birthrate with high death rate

3.

High birthrate with low death rate

Select the correct order of the above stages using the codes given below :
(a) 1, 2, 3
(b) 2, 1, 3
(c) 2, 3, 1
(d) 3, 2, 1
Solution (c)

To obtain full benefits of demographic dividend, what should India do? (2013)
(a) Promoting skill development
(b) Introducing more social security schemes
(c) Reducing infant mortality rate
(d) Privatization of higher education
Solution (a)