UPSC Essentials — Daily subject-wise quiz : Economy (Week 17)

QUESTION 1

With reference to the strategic oil reserves of India, consider the following statements:

1. India’s strategic oil reserves come under the Ministry of Defence.

2. Salt cavern-based storage is considered expensive and more labour- and cost-intensive than rock caverns.

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

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

QUESTION 2

With reference to the Pradhan Mantri Kisan Samman Nidhi (KISAN) Scheme, conisder the following statements:

1. The scheme gives beneficiaries financial assistance of Rs 6,000 per year in two equal instalments every six months.

2. The scheme was launched in 2020.

3. It has become the first government scheme to do e-KYC through facial authentication mobile app.

4. The amount is transferred to the bank accounts of eligible farmers’ families through Direct Benefit Transfer (DBT) mode.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) Only three

(d) All four

QUESTION 3

With reference to the headline inflation, consider the following statements:

1. It is calculated using the Wholesale Price Index.

2. Food items are more responsible in higher headline inflation than fuel and other items.

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

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

QUESTION 4

With reference to the liquidity in the banking system, consider the following statements:

1. It refers to readily available cash that banks need to meet short-term business and financial needs.

2. if the banking system is a net borrower to the RBI, then the system liquidity can be said to be in surplus.

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

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

QUESTION 5

With reference to the impacts of inflation, consider the following statements:

1. It reduces overall demand.

2. It increases purchasing power of the people.

3. It helps the government meet debt obligations.

4. It worsens the exchange rate.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) Only three

(d) All four

ANSWERS TO MCQs

1. (d)

FYI:

— Government-owned engineering consultancy firm Engineers India (EIL) is studying the prospects and feasibility of developing salt cavern-based strategic oil reserves in Rajasthan, in line with the government’s objective of increasing the country’s strategic oil storage capacity.

— India currently has an SPR capacity of 5.33 million tonnes, or around 39 million barrels of crude, that can meet around 9.5 days of demand.

— The country is in the process of expanding its SPR capacity by a cumulative 6.5 million tonnes at two locations — Chandikhol in Odisha (4 million tonnes) and Padur (2.5 million tonnes).

— India’s strategic oil reserves come under the Petroleum Ministry’s special purpose vehicle Indian Strategic Petroleum Reserve (ISPRL). EIL was instrumental in setting up the country’s existing SPR as the project management consultant. Hence, statement 1 is not correct.

— Salt cavern-based storage, which is considered cheaper and less labour- and cost-intensive than rock caverns, could add a new, much-needed chapter to India’s SPR story. Hence, statement 2 is not correct.

What are Salt cavern-based reserves?

— Salt caverns are developed by solution mining, which involves pumping water into geological formations with extensive salt deposits to dissolve the salt.

— After the brine (water with dissolved salt) is pumped out of the formation, the space can be used to store crude oil.

— The process is simpler, faster, and less cost-intensive than developing excavated rock caverns.

Therefore, option (d) is the correct answer.

2. (b)

FYI:

— The government rolled out a face authentication feature in the PM-Kisan app, which will enable beneficiary farmers to complete their e-KYC process by just scanning their face on mobile phones instead of using one-time password or fingerprints.

— The PM-Kisan scheme has become the first scheme of the government to do e-KYC through facial authentication mobile app. Hence, statement 3 is correct.

— Until now, e-KYC of the PM-Kisan beneficiaries used to be done through either biometrics at a designated centre or one-time passwords sent to mobile phone numbers linked with Aadhaar.

— The scheme was launched in 2019. Hence, statement 2 is not correct.

— The Pradhan Mantri Kisan Samman Nidhi or PM-Kisan scheme gives beneficiaries financial assistance of Rs 6,000 per year in three equal instalments every four months. Hence, statement 1 is not correct.

— The amount is transferred to the bank accounts of eligible farmers’ families across the country through Direct Benefit Transfer (DBT) mode. Hence, statement 4 is correct.

Therefore, option (b) is the correct answer.

3. (b)

FYI:

— Headline inflation has been above the 4 per cent mark since 2019-20. It is calculated using the Consumer Price Index. This index had different categories with varying weights. Hence, statement 1 is not correct.

— There are three main categories, food items account for 46 per cent, fuel and light for 7 per cent and all other items makeup 47 per cent.  Hence, statement 2 is correct.

— It is important to understand that a 10 per cent increase in food items will obviously raise the overall inflation far more than a 10 per cent increase in fuel prices.

Therefore, option (b) is the correct answer.

4. (a)

FYI:

— Liquidity in the banking system refers to readily available cash that banks need to meet short-term business and financial needs. Hence, statement 1 is correct.

— On a given day, if the banking system is a net borrower from the RBI under Liquidity Adjustment Facility (LAF), the system liquidity can be said to be in deficit and if the banking system is a net lender to the RBI, the system liquidity can be said to be in surplus. Hence, statement 2 is not correct.

— The LAF refers to the RBI’s operations through which it injects or absorbs liquidity into or from the banking system.

Therefore, option (a) is the correct answer.

5. (c)

FYI:

Impacts of Inflation

— It helps the government meet debt obligations. In the short term, the government, which is the single largest borrower in the economy, benefits from high inflation. Inflation also allows the government to meet its fiscal deficit targets. Hence, statement 3 is correct.

— It reduces people’s purchasing power. Hence, statement 2 is not correct.

— It reduces overall demand due to reduced purchasing power, which restricts consumers to fewer goods and services. Hence, statement 1 is correct.

— It harms savers and helps borrowers.

— In the short term, corporates, especially the large and dominant ones, could enjoy higher profitability because they might be in a position to pass on the prices to consumers. But for many companies, especially smaller ones, persistently higher inflation will reduce sales and profitability because of lower demand.

— It worsens the exchange rate. Hence, statement 4 is correct.

Therefore, option (c) is the correct answer.

Previous Daily Subject-Wise-Quiz

Daily subject-wise quiz — Polity and Governance (Week 17)

Daily Subject-wise quiz — History, Culture, and Social Issues (Week 17)

Daily subject-wise quiz — Environment, Geography, Science and Technology (Week 16)

Daily subject-wise quiz — Economy (Week 16)

Daily subject-wise quiz – International Relations (Week 16)

(The UPSC Essentials Indian Express is now on Telegram- Indian Express UPSC Hub. Click here to join our YouTube channel and stay updated with the latest updates.

Note: Catch the UPSC Weekly Quiz every Saturday evening and brush up on your current affairs knowledge.)