Boost Your UPSC Economy Preparation with Essential MCQs
Are you gearing up for the UPSC Civil Services Preliminary Examination 2026? The Indian Express UPSC Essentials initiative brings you another crucial subject-wise quiz designed to help you assess your preparation level and revise key economic concepts. Today's focus covers vital topics including Balance of Payments, RBI's role in currency management, least developed countries, deposit insurance, and Goods and Services Tax.
Question 1: Understanding Balance of Payments
When examining the Balance of Payments (BoP), consider these statements:
1. The Balance of Payments represents a statistical record that methodically documents a country's economic interactions with other nations during a defined timeframe.
2. The Reserve Bank of India collects and publishes the official BoP statistics.
3. This data gets released annually.
How many of these statements are accurate?
Explanation: The first statement correctly defines BoP as a comprehensive statistical statement that systematically captures a nation's economic transactions globally, encompassing merchandise trade, services, and capital transfers. The second statement is also valid since the Reserve Bank of India indeed compiles and disseminates official BoP statistics. However, the third statement contains incorrect information because BoP data currently gets published quarterly, not annually. The current account balance remains the most closely monitored figure within these quarterly releases.
Therefore, only two statements are correct, making option (b) the right answer.
Question 2: RBI's Role in Supporting the Indian Rupee
The Reserve Bank of India supports the Indian Rupee through which of these methods:
1. Engaging in foreign currency sales and purchases
2. Managing the country's foreign exchange reserves
3. Allowing investments in corporate bonds and commercial papers from balances in Special Rupee Vostro Accounts used for trade settlements
Select the correct answer using the codes below:
Explanation: The RBI employs multiple strategies to stabilize the Indian rupee. Recent market activities demonstrated this when the rupee recovered to an intraday high of 89.08 against the US dollar after the central bank intervened to protect the domestic currency. The RBI's toolkit includes direct market interventions through foreign currency transactions, careful management of foreign exchange reserves, and policies aimed at internationalizing the rupee.
Recent policy reforms introduced in October 2025 specifically allow authorized banks to provide rupee loans to non-residents in certain neighboring countries for trade purposes. These reforms also permit investments in corporate bonds and commercial papers from balances in Special Rupee Vostro Accounts used for trade settlements, while developing transparent reference rates for major trading partners' currencies to enable direct quoting.
All three statements accurately describe RBI's rupee support mechanisms, making option (d) the correct choice.
Question 3: Identifying Least Developed Countries
Regarding least developed countries (LDCs), evaluate these statements:
1. These nations represent low-income countries facing serious structural challenges to achieving sustainable development.
2. The Committee for Development Policy (CDP) reviews the LDC list every five years.
Explanation: The first statement correctly characterizes LDCs as low-income nations confronting significant structural barriers to sustainable development. These countries demonstrate high vulnerability to economic and environmental disruptions while maintaining low human capital levels. However, the second statement contains inaccurate information because the Committee for Development Policy actually reviews the LDC list every three years, not every five years. Currently, 44 countries appear on this list.
LDCs benefit from exclusive access to specific international support measures, particularly those related to development assistance and trade facilitation.
Only the first statement is correct, making option (a) the right answer.
Question 4: Deposit Insurance Coverage in India
Concerning deposit insurance, assess these statements:
1. The insurance coverage of Rs 5 lakh per depositor applies to all accounts maintained by the depositor across all branches of the insured bank.
2. The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures commercial banks and primary cooperative societies.
Explanation: The DICGC primarily aims to protect small depositors from potential savings losses during bank failures. The first statement accurately describes the insurance coverage, where the Rs 5 lakh protection extends to all accounts held by a depositor across every branch of an insured bank. This coverage includes savings accounts, fixed deposits, current accounts, and recurring deposits.
However, the second statement contains incorrect information. While the DICGC does insure all commercial banks (including foreign bank branches in India), local area banks, regional rural banks, and cooperative banks, it explicitly excludes primary cooperative societies from its coverage. The insurance also doesn't cover deposits made by foreign, central, or state governments, along with interbank deposits.
Only the first statement is correct, making option (a) the appropriate answer.
Question 5: Goods and Services Tax Fundamentals
Regarding the Goods and Services Tax (GST), consider these statements:
1. India implemented GST in 2017.
2. It consolidated numerous state and central-level indirect taxes, including octroi, luxury tax, value added tax, and entry tax, into a unified structure.
Explanation: The first statement correctly identifies 2017 as the implementation year for GST in India. Recent developments saw the Goods and Services Tax Council, during its 56th meeting, approving significant reforms to the GST framework. The key changes involved reducing the four existing tax slabs (5%, 12%, 18%, and 28%) to two primary slabs (5% and 18%), while introducing a new 40% slab.
The second statement accurately describes GST's fundamental nature as a comprehensive tax that merged multiple state and central-level indirect taxes into a single, destination-based unified structure. This consolidation eliminated various taxes including octroi, luxury tax, value added tax, and entry tax.
Both statements are correct, making option (c) the right answer.
Regular practice through such quizzes helps UPSC aspirants identify knowledge gaps and strengthen their understanding of crucial economic concepts. Stay updated with current economic developments and policy changes to enhance your preparation for the UPSC Civil Services Examination 2026.
