“Option 2 is Incorrect:
Loan to a State government is not a one way payment as the State government has to return it as per the loan conditions.

In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income and wealth (payment) made without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government making subsidies for certain businesses (firms).

For the purposes of calculating gross domestic product (GDP), government spending does not include transfer payments – the reallocation of money from one party to another – which includes Social Security, Medicare, unemployment insurance, welfare programs and subsidies. Because these are not payments for goods or services, they do not represent a form of final demand, or GDP.”

“Both Statements are Correct:
Trade Related Intellectual Property Rights:
TRIPS is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.

Prior to the TRIPS agreement the IPR concerning the trade including patent, trademarks, copyrights and industrial designs were governed by the Paris Convention of 1863.
The Paris convention was fairly liberal and left the subject matter of patents and IPR on the respective governments.

Under these lose laws the commercial interests of the Developed countries were adversely affected.

Therefore, TRIPS was concluded during Uruguay Round.

Trade Related Investment Measures:
The Agreement on Trade-Related Investment Measures (TRIMS) recognizes that certain investment measures can restrict and distort trade.

It states that WTO members may not apply any measure that discriminates against foreign products or that leads to quantitative restrictions, both of which violate basic WTO principles.

A list of prohibited TRIMS, such as local content requirements, is part of the Agreement.

Recently India was dragged to WTO by U.S. over former’s specification of Domestic Content Requirement in relation to the procurement of Solar Energy cells and equipment.”

“Statement 2 is Incorrect:
Redemption is made in rupee value equivalent to the price of gold at the time of maturity.

The key features of SGBs are as follows:
– SGBs are issued by RBI on behalf of the Government of India.
– Denominated in rupees and in grams of gold
– Restricted for sale to the resident Indian entities only both in demat and paper form.
– Minimum permissible investment will be 1 gram of gold. The maximum limit of subscribed shall be 4 KG
– The tenor of the Bond is for a period of 8 years with exit option from 5th year onwards.
– Exemption from capital gains tax is also available.
– Redemption is made in rupee value equivalent to the price of gold at the time of maturity.”

“Statement 3 is Incorrect:
Developed economies generally go through liquidity trap.

‘Liquidity Trap’:
The liquidity trap is the situation in which the current interest rates are low and savings rates are high, rendering monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.

As part of the liquidity trap, consumers continue to hold funds in standard deposit accounts, such as savings and checking accounts, instead of in other investment options, even when the central banking system attempts to stimulate the economy through the injection of additional funds. These consumer actions, often spurred by the belief of a negative economic event on the horizon, causes monetary policy to be generally ineffective.
”

“Both Statements are Correct:
Differentiated banks are banking institutions licensed by the RBI to provide specific banking services and products.

It is a system refers to the system of different licenses for different sub components of the banking sector such as Limited Banking License, Commercial Banking License etc. A differentiated license will allow a bank to offer products only in select areas.

Main aim for giving license to differentiated banks is to promote financial inclusion and payments. The term differentiated banks indicate that they are different from the usual universal banks. The universal banks like SBI, Canara Bank etc. can give almost all products and services. On the other hand, the differentiated banks can give only selected products like credit, payments, deposit etc., with RBI regulations.

Differentiated banks licensing was launched in 2015. The differentiated banks are of two types-payment banks and small finance banks.

”

“Statements 2 and 3 are Incorrect:
Payments banks are a new model of banks conceptualised by the Reserve Bank of India (RBI) to meet government’s financial inclusion target.

It will be set up as a differentiated bank and will confine its activities to acceptance of demand deposits, remittance services, Internet banking and other specified services but cannot undertake lending services.

Payments banks can accept deposits up to Rs. 1 lakh per account from individuals and small businesses. They can issue ATM/debit cards but not credit cards. They can also issue other prepaid payment instruments.

They can distribute non-risk sharing simple financial products like mutual funds and insurance products. Non-resident Indians (NRIs) are not be allowed to open accounts in payment banks. This new model of banking allows mobile firms, supermarket chains and others to cater to banking requirements of individuals and small businesses.”

“Both Statements are Correct:
A Giffen good is a good for which demand increases as the price increases, and falls when the price decreases. A Giffen good has an upward-sloping demand curve, which is contrary to the fundamental law of demand which states that quantity demanded for a product falls as the price increases, resulting in a downward slope for the demand curve.

A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen.”

“Option C is Incorrect:
Quantitative Easing aims to increase banks lending capacity.

Quantitative easing (QE), also known as large-scale asset purchases, is an expansionary monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to stimulate the economy and increase liquidity. An unconventional form of monetary policy, it is usually used when inflation is very low or negative, and standard expansionary monetary policy has become ineffective.

A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply.This differs from the more usual policy of buying or selling short-term government bonds to keep interbank interest rates at a specified target value.”

“Statement 1 is Incorrect:
GDP doesn’t cover following:
– Underground Economy
– Non-Marketed Activities (Mom cooking food for home)
– Barter Exchanges (Rice given for oranges)
– Negative Externality (Acid rain)
– Opportunity cost lost (kids not going to school which could have made difference in future – Human Dev)- (HDI)
Income Inequality (Gini Coefficient)”

“All Statements are Correct:
Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. Because of the potential for cross-border controlled transactions to distort taxable income, tax authorities in many countries can adjust intra group transfer prices that differ from what would have been charged by unrelated enterprises dealing at arm’s length.

Base erosion and profit shifting or BEPS refers to corporate tax planning strategies used by multinationals designed to “”shift”” profits from higher-tax jurisdictions to lower-tax jurisdictions, thus “”eroding”” the “”tax-base”” of the higher-tax jurisdictions.

Round-tripping is a money laundering technique. It is also known as round-trip transactions or ‘Lazy susans’. This is defined as a form of barter system that involves a company while at the same time agreeing to buy back the same or similar assets at about the same price. This process is sometimes used as a means of increasing the apparent amount of sales and revenue generated by the seller during a specific financial period. While a relatively common process, not everyone in the financial community considers this a proper method of doing business.”

“Statement 2 is Incorrect:
Mutual Funds are regulated by SEBI.

A mutual fund is a fund that is created when a large number of investors put in their money, and is managed by professionally qualified persons with experience in investing in different asset classes-shares, bonds, money market instruments like call money, and other assets like gold and property.

The name of the mutual fund gives a good idea about what type of asset class a fund, also called a scheme, will invest in. For example, a diversified equity fund will invest in a large number of stocks, while a gilt fund will invest in government securities while a pharma fund will mainly invest in stocks of companies from the pharmaceutical and related industrie.

There are three types of schemes in which an investor can invest in. These are open-ended schemes, closed-ended schemes, and exchange-traded funds (ETFs).

Open Ended Fund:
An open-ended fund is the one which is usually available from a mutual fund on an ongoing basis that is an investor can buy or sell as and when they intend to at a NAV-based price.

As investors buy and sell units of a particular open-ended scheme, the number of units issued also changes every day.

The value of the scheme’s portfolio also changes on a daily basis. So, the NAV also changes on a daily basis. In India, fund houses can sell any number of units of a particular scheme, but at times fund houses restrict selling additional units of a scheme for some time.

Close-ended Fund:
A close-ended fund usually issue units to investors only once, when they launch an offer, called new fund offer (NFO) in India.

Thereafter, these units are listed on the stock exchanges where they are traded on a daily basis. As these units are listed, any investor can buy and sell these units through the exchange.

As the name suggests, close-ended schemes are managed by fund houses for a limited number of years, and at the end of the term either money is returned to the investors or the scheme is made open-ended.

However, usually, units of close ended funds which are listed on the stock exchanges, trade at a high discount to their NAVs. But as the date for closure of the fund nears, the discount between the NAV and the trading price narrows, and vanishes on the day of closure of the scheme.

ETFs:
ETFs are a mix of open-ended and close-ended schemes.

ETFs, like close-ended schemes, are listed and traded on a stock exchange on a daily basis, but the price is usually very close to its NAV, or the underlying assets, like gold ETFs.
”

“Statement 3 is Incorrect:
The assets size of a bank is used as a criteria for classifying bank as D-SIB

Domestic Systemically Important Bank(D-SIB):
D-SIB means that the bank is too big to fail. According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection. Banks whose assets exceed 2% of GDP are considered part of this group. The RBI stated that should such a bank fail, there would be significant disruption to the essential services they provide to the banking system and the overall economy.

The too-big-to-fail tag also indicates that in case of distress, the government is expected to support these banks. Due to this perception, these banks enjoy certain advantages in funding. It also means that these banks have a different set of policy measures regarding systemic risks and moral hazard issues.

HDFC Bank Ltd,State Bank of India (SBI) and ICICI Bank Ltd are currently classified as D-SIB.
”

“Both Statements are Incorrect:
When the liquidity position is tight,returns are higher on Treasury Bills.

Individuals, Firms, Trusts, Institutions and banks can purchase Treasury Bills.

Treasury Bills.
The bill market is a sub-market of the money market in India. There are two types of bills viz. Treasury Bills and commercial bills. While Treasury Bills or T-Bills are issued by the Central Government; Commercial Bills are issued by financial institutions.

Types of Treasury Bills:
Treasury Bills are basically instruments for short term (maturities less than one year) borrowing by the Central Government. Treasury Bills were first issued in India in 1917. At present, the active T-Bills are 91-days T-Bills, 182-day T-Bills and 364-days T-Bills. The 91 day T-Bills are issued on weekly auction basis while 182 day T-Bill auction is held on Wednesday preceding Non-reporting Friday and 364 day T-Bill auction on Wednesday preceding the Reporting Friday. In 1997, the Government had also introduced the 14-day intermediate treasury bills. Auctions of T-Bills are conducted by RBI.

T-Bills are issued on discount to face value, while the holder gets the face value on maturity. The return on T-Bills is the difference between the issue price and face value. Thus, return on T-Bills depends upon auctions. When the liquidity position in the economy is tight, returns are higher and vice versa.

Who can purchase T-Bills?
Individuals, Firms, Trusts, Institutions and banks can purchase T-Bills. The commercial and cooperative banks use T-Bills for fulfilling their SLR requirements.

Advantages of Treasury Bills
Objective of issuing T-Bills is to fulfill the short term money borrowing needs of the government. T-bills have an advantage over the other bills such as:

Zero Risk weighting associated with them. They are issued by the government and sovereign papers have zero risk assigned to them
High liquidity because 91 days and 364 days are short term maturity.
Transparency
The secondary market of T-Bills is very active so they have a higher degree of tradability.
”

“Statement 1 is Incorrect:
Inflation harms creditors, as they lose in real terms

Effects of Inflation on Different Sections:
Creditor/lender : Inflation harms creditors, as they lose in real terms.

For example : A 1000 Rupees lent @ 5%, will pay an interest rate of 50. If inflation rises to 10%, the price of goods will be 1100, but after interest, the return will only be 1050.

Debtor/Borrower : Inflation benefits the Debtor as they gain in real terms.

Pensioner : Inflation harms the pensioners, if their pensions are not indexed to inflation, and loses money.

Producers : They stand to gain by inflation since the price of goods and services rise faster than the cost of production as wages take time lag to react.

Wealth Holders : They stand to lose due to inflation, as their real returns fall due to rise in prices.”

“Option C is Correct:
A deficit can be defined as a value by which the total amount falls short of a reference amount.
Revenue Deficit:
Revenue deficit is the excess of total revenue expenditure of the government over its total revenue receipts. It is related to only revenue expenditure and revenue receipts of the government. Alternatively, the shortfall of total revenue receipts compared to total revenue expenditure is defined as revenue deficit.

It is an indicator of the fact that the government or the organisation in consideration is not raising enough money to meet its basic needs and the provisions of schemes and services extended by it. Revenue deficit results in borrowing. For example, when government spends more than what it collects by way of revenue, it incurs revenue deficit. Mind, revenue deficit includes only such transactions which affect current income and expenditure of the government.

Fiscal Deficit:
The fiscal deficit is the excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year. In simple words, it is the amount of borrowing the government has to resort to meet its expenses.

When a large amount of borrowing is to be done by the government to fulfil its requirements. This is done when the available resources are scarce.

Primary Deficit:
Primary deficit is defined as the fiscal deficit of current year minus interest payments on previous borrowings.

The difference between fiscal deficit and primary deficit is that fiscal deficit indicates the borrowing requirements includes. of the interest amount where as primary deficit excludes interest payment amount. We have seen that borrowing requirement of the government includes not only accumulated debt, but also interest payment on the debt. If we deduct ‘interest payment on debt’ from borrowing, the balance is called primary deficit”

“Option 4 is Incorrect:
Loan Repayment comes under Capital Expenditure.

Components of Revenue Expenditure:
While the Revenue Receipts are those incomes of the Government which don’t create additional liability, the Revenue Expenditures are those expenditures which don’t create any productive assets. The money in these expenditures goes either in running administration / operation of government or in welfare schemes which don’t result in creation of assets. Specific examples are discussed below:

1.The interest paid by the Government of India on all the internal and external loans does not produce any assets, so it is revenue expenditure.
2.The salaries and Pension paid by the Government to Government employees is needed to run the Government’s business. It is revenue expenditure.
3.The subsidies forwarded by the government to all sectors do not produce any productive asset, so it is revenue expenditure.
4.The defense expenditures which are needed for smooth operation of the standing armed forces is a revenue expenditure. However, purchase of equipments produces assets, so that would be a Capital expenditure.
5.The postal expenditures and deficits are Revenue expenditures.
6.The money spent of maintaining the law and order situation of the country is also revenue expenditures.
7.The money spent on various social services such as public health, education, poverty alleviation, scholarships, etc. all revenue expenditures.
8.The grants given by the Government of India to states and other countries is Revenue expenditures.”

“Option C is Correct:
National Income at Factor Cost
National Income from Factor Cost is also called National Income of a country.
National Income means the sum of all incomes earned by the citizens in the form of Rent, Wages, Interest and Profits.

The difference between National Income at Factor Cost and National Income at Market Price (NNPMP) arises from the fact that indirect taxes and subsidies cause the market price to be different from the factor income received by the citizens.

Example, A mobile handset of Rs10,000 purchased by you includes a GST of 12%. In this case, while the market price of RS 10,000 includes the GST. The factor of production used to produce mobile handset will only get RS 8800. Thus, the difference between market price and factor cost is the tax.

Similarly, a subsidy results in the market price of a product to be less than the factor cost.
Therefore, while calculating National Income, we must deduct indirect taxes and add subsidies into Net National Product at Market Price.
NNPFC = NNPMP – Indirect Taxes + Subsidies.
”

“Both Statements are Incorrect:
Headline inflation includes food and fuel items.

Core inflation is used by government as tool for framing long-term policy targeting inflation.

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, Each unit of currency buys fewer goods and services.

Headline Inflation versus Core Inflation:
Headline inflation reflects prices of all the tradeables within an economy including those commodities or items that experience sudden inflationary spikes such as food or energy. On the other hand, Core Inflation is a measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc.

Since headline inflation includes everything, it may not present an accurate picture of the current state of the economy. On the other hand, the core inflation shows long term trends and is focused by Central Banks because it reflects the demand side pressure in the economy. It is also used as tool for framing long-term policy. In recent years, due to the these reasons, RBI has inclined from headline to core inflation which shows a more correct trend in inflation.”