[Answerkey] CSAT 2013 GS: Economy: Questions solved with explanation, reference, all four sets (A,B,C,D)

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  1. Prologue
  2. Banking Related
  3. Foreign Trade Related
  4. Inflation
  5. GDP and allied topics


  • Out of 100 GS questions in UPSC CSAT 2013, there were 18 questions from Economy.
  • All questions from Static portion, Not even one Economy related question from current affairs.
  • But don’t think that your majoori (labour) has gone in vain. Whatever you prepared for Economy current affairs –that will definitely help you directly/indirectly in Mains, Essay and interview (or atleast let’s hope so again hahaha.)
  • Thankfully no question on trivial dates and numbers of Economy (bad news for the next year sales of those special issues/editions on Economy).

Almost all of these questions can be solved by reading following:

  1. NCERT Textbooks on Economics
  2. NIOS PDF set on Economics
  3. Indian Economy by Ramesh Singh (McGraw Hill Education)
  4. Finance Chapter from India 2013 (Yearbook).
  5. And of course the Main Villain: Mrunal.org/economy

Within Economy topic, the internal breakup looks like this:

Banking 7
Foreign trade 3
Inflation 3
GDP, Development and allied topics 5
Total 18


Banking Related

bank rate

1. An increase in the Bank Rate generally indicates that the

  1. market rate of interest is likely to fall
  2. Central Bank is no longer making loans to commercial banks
  3. Central Bank is following an easy money policy
  4. Central Bank is following a tight money policy

Bank Rate=RBI lends money to its clients for long term loans @this interest rate.

Tight monetary policy= when RBI raises the rates to decrease liquidity.

Answer choice Comment
  1. market rate of interest is likely to fall
Not possible. because if RBI lends money to its clients @higher rate, they won’t reduce their loan interest rates, because it’ll reduce their profit margin.
  1. Central Bank is no longer making loans to commercial banks
  1. Central Bank is following an easy money policy
Reverse is happening.
  1. Central Bank is following a tight money policy
This is the answer.

RBI’s regulatory powers

2. The Reserve Bank of India regulates the commercial banks in matters of

  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.

  1. 1 and 4 only
  2. 2, 3 and 4 only
  3. 1, 2 and 3 only
  4. 1, 2, 3 and 4

RBI regulates Liquidity of Assets via SLR hence B is false, because it doesn’t have (1)

If existing bank requires RBI permission. Hence (A) is false because it doesn’t have (2).

Amalgamation /Merger of two bank require RBI’s approval. Thus final answer is D.

credit to villagers

3. Which of the following grants/ grant direct credit assistance to rural households?

  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:

  1. 1 and 2 only
  2. 2 only
  3. 1 and 3 only
  4. 1, 2 and 3

NABARD doesn’t give “direct” credit assistance. It provides credit via intermediaries such as Microfinance companies, cooperative society, RRB. Therefore, 2 is false. Any answer choice that contains 2 is false. And thus we’re left with C only 1 and 3.

liquid assets

4. Consider the following liquid assets:

  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

  1. 1-4-3-2
  2. 4-3-2-1
  3. 2-3-1-4
  4. 4-1-3-2
  • Currency (#4) is most liquid, because you can use it as and when you want.
  • Time deposit with bank (#1) (e.g. fixed deposit), are least liquid compared to savings/demand deposit with banks and currency(#4).
  • That means decreasing order of liquidity will be 4-*-*-1.
  • and Demand deposit with bank >more liquid> savings deposit
  • final order is 4-1-3-2 Answer choice D


  1. In the context of Indian economy, Open Market Operations refers to
  1. borrowing by scheduled banks from the RBI
  2. lending by commercial banks to industry and trade
  3. purchase and sale of government securities by the RBI
  4. None of the above

Recall the Liquidity adjustment facility article: Click me

Open market operation= when RBI buys/sells securities in open market…. in case of OMO, first party permanently sells the Government security to second party. Second party is free to do whatever it wants with that security.

Hence Answer C

Another source: NCERT Macroeconomics class 12, page 44

Open market operations: RBI purchases or sells government securities to general public…


6. Priority Sector Lending by banks in India constitutes the lending to

  1. agriculture
  2. micro and small enterprises
  3. weaker sections
  4. All of the above

Answer is (D) all of above. For more, refer

money supply

7. Supply of money remaining the same when there is an increase in demand for money, there will be

  1. a fall in the level of prices
  2. an increase in the rate of interest
  3. a decrease in the rate of interest
  4. an increase in the level of income and employment

If supply of onion is same, but junta demands more onion, what will vegetable-seller do? Increase price to get more profit. When same thing happens with money, the banks/lenders will do the same by increasing interest rates.

Answer is (B).

Foreign Trade Related


1. The balance of payments of a country is a systematic record of

  1. all import and export transactions of a country during a given period of time, normally a year
  2. goods exported from a country during a year
  3. economic transaction between the government of one country to another
  4. capital movements from one country to another

Question contains problematic wording. Consider this:

Balance of Payment (BoP) As per definition in ch.6, NCERT Macroeconomics, class 12.

  • Balance of payment records the transaction in goods, service and assets between ‘residents’ (and not governments) of one country with the rest of world.

This makes option C is wrong.

Balance of trade (BoT) It is the balance of exports and imports. So option (A) is actually talking about BoT and not BoP.BoP is a more than just import and export transactions because it includes Current account (inside that balance of trade, gifts, remittance, dividend etc.) + Capital account (FDI, FII, ECB etc.)


  • B and D are irrelevant.
  • anyways in the given the mess, I pick A as the answer.

Update Jun-26-2014: UPSC uploaded official answerkey. Correct answer is: A.

Components of Capital Account

2. Which of the following constitute Capital Account?

  1. Foreign Loans
  2. Foreign Direct Investment
  3. Private Remittances
  4. Portfolio Investment

Select the correct answer using the codes given below.

  1. 1, 2 and 3
  2. 1, 2 and 4
  3. 2, 3 and 4
  4. 1, 3 and 4

Recall article on 6th Chapter of Economic Survey Click me

or just observe the chart given under previous question.

Remittances (item#3) fall under Current Account. Therefore any answer choice that includes #3, is wrong. Eliminate them.

  1. 1, 2 and 3
  2. 1, 2 and 4
  3. 2, 3 and 4
  4. 1, 3 and 4

Thus we’re left with answer (B)

Components of Forex Reserve

3. Which one of the following groups of items is included in India’s foreign-exchange reserves?

  1. Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
  2. Foreign-currency assets, gold holdings of the RBI and SDRs
  3. Foreign-currency assets, loans from the World Bank and SDRs
  4. Foreign-currency assets, gold holdings of the RBI and loans from the World Bank

Recall article on ch6 of Economic survey

Click me

India’s foreign exchange reserves is made up of

  1. Foreign currency assets (FCA) (US dollar, euro, pound sterling, Canadian dollar, Australian dollar and Japanese yen etc.)
  2. gold
  3. special drawing rights (SDRs) of IMF
  4. Reserve tranche position (RTP) in the International Monetary Fund (IMF)

Hence the closest answer choice is (B): Foreign-currency assets, gold holdings of the RBI and SDRs

Other answer choices talk about loans from foreign countries/World bank: while those have some relevance in current/capital account classification type MCQs, but in case of forex reserve they’re irrelevant.

Another reference for this answer: India 2013 (Yearbook) Page 334, last two lines.


benefit to debtors

1. Consider the following statements:

  1. Inflation benefits the debtors.
  2. Inflation benefits the bond-holders.

Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2

Refer page 7.8 in Indian Economy by Ramesh Singh, topic title “Effects of Inflation”–> I. On Creditors and Debtors.

  • Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation.
  • Bond holders= this person has lend money (to debtor) and received bond in return. So he is lender, he suffers.
  • Therefore Answer choice is (A) 1 only (Debtor benefits from inflation).

by the way, they haven’t specifically used the word “inflation indexed bonds”, hence we cannot say Inflation benefits the bond-holders.

inflation cause

2. A rise in general level of prices may be caused by

  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.

  1. 1 only
  2. 1 and 2 only
  3. 2 and 3 only
  4. 1, 2 and 3

All three lead to inflation. Answer (D)

inflation cause

3. Which one of the following is likely to be the most inflationary in its effect?

  1. Repayment of public debt
  2. Borrowing from the public to finance a budget deficit
  3. Borrowing from banks to finance a budget deficit
  4. Creating new money to finance a budget deficit

Printing/creating new money to finance a budget deficit will be the most inflationary effect. Because it increases money supply without any increase in production of goods and services. Recall the Israel Palestine article (click me): How Germany suffered Hyperinflation when government started printing money just to pay war reparation costs under Treaty of Versailles. Check this photo: A German woman burns currency, because its paper was cheaper fuel than coal!


and @Public Administration players, recall the great Laxmikanth and his chapter on Financial administration:

Currency expansion: Under this method, government prints more currency to repay debts. This results in inflation and destroys the fixed value of money claims. This method was used by Germany after First World War.

GDP and allied topics

National income, meaning of

1. The national income of a country for a given period is equal to the

  1. total value of goods and services produced by the nationals
  2. sum of total consumption and investment expenditure
  3. sum of personal income of all individuals
  4. money value of final goods and services produced

Observe the glossary given on page 100 and 101 in NCERT Macroeconomics class 12.
National income= NNP @Market price MINUS indirect tax PLUS subsidies.
then what is NNP @Market price? (NNP_MP)


then what is GNP?

GNP=GDP + Net factor income from abroad. In other words, GNP includes the aggregate income made by all citizens of the country, whereas GDP includes incomes by foreigners within the domestic economy and excludes the incomes earned by the citizens in foreign economy.

Thus answer is (A).

Another source: As per NIOS Economy Chapter 12, topic #12.3

National income of a country is defined as the sum of total factor incomes accruing to the residents of that country from the production activity performed by them both within and outside the economic territory in a year.

Hence the closest answer among the given = (A).
Update Jun-26-2014: UPSC uploaded official answerkey. Correct answer is: D. money value of final goods and services produced.

disguised unemployment, meaning of

2. Disguised unemployment generally means

  1. large number of people remain unemployed
  2. alternative employment is not available
  3. marginal productivity of labour is zero
  4. productivity of workers is low

Suppose three people work in farm, produce 200kg wheat. If one of them is removed, still farm produces 200kg wheat. That is disguised unemployment. Marginal productivity is zero. Hence Answer C.
Another example of disguised unemployment is ministers in Mohan’s cabinet. Whether you keep or remove Pawan and Ashwini, the efficiency of government doesn’t change.
economy disguised unemployment in UPA

Economic growth, factors responsible

3. Economic growth in country X will necessarily have to occur if

  1. there is technical progress in the world economy
  2. there is population growth in X
  3. there is capital formation in X
  4. the volume of trade grows in the world economy

NIOS Economy, Ch 36, bullet point 29.3:

Internally capital formation takes place when a country does not spend all its current income and consumption, but saves a part of it and uses it for investment for increasing further production. This act of saving and investment is described as capital accumulation or capital formation.
Therefore, answer is (C)

B is wrong because
NIOS Economy, Ch 38 population and economic development,

  • The high growth rate of population adversely affects capital formation in the developing economies. More resources are used for meeting the fast increasing consumption needs. This leaves less resources for increasing productivity capacity of the economy. This adversely affects the future growth rate of these economies.
  • The developing countries already have a large labour force, which remains underutilised due to lack of capital. The fast increasing population makes the task of absorbing the labour force in productivity activities all the more difficult. So the large increasing population is more of a liability than an asset in these economies.

A and D are wrong because
The positive developments happening in World economy (choice A and D) won’t help economic growth in the given country, if it is a closed economy.
Final answer (C)

Deficit Financing purpose

4. In India, deficit financing is used for raising resources for

  1. economic development
  2. redemption of public debt
  3. adjusting the balance of payments
  4. reducing the foreign debt

as per page 273, Development and Environmental Economics by Ne Thi Somashekar

Deficit financing is a pragmatic tool of economic development and has been used by Indian government to obtain necessary resources to finance the five year plans.

Answer (A)

Demographic Dividend

5. To obtain full benefits of demographic dividend, what should India do?

  1. Promoting skill development
  2. Introducing more social security schemes
  3. Reducing infant mortality rate
  4. Privatization of higher education

To rip maximum demographic dividend, India has to promote skill development. This is what Economic Survey and 12th FYP have been advocating. Ans (A)

Answerkeys for remaining topics, coming soon. + thanks Mr. Palas Nuwal and Mr.Shiva Ram for providing inputs.

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332 Comments on “[Answerkey] CSAT 2013 GS: Economy: Questions solved with explanation, reference, all four sets (A,B,C,D)”

  1. really happy…till now all 36 correct(eco + polity) according to mrunal keys :)

  2. Mrunal Sir, your answer to question on National Income is incorrect. Two points I would like to make.. in any book on Economics which deals with the basics it is clearly mentioned that value of final goods and services is counted and not total so as to avoid double counting. Secondly, John Maynard Keynes has given the definition of National Income being the koney value of final goods and services produced in a year in a country. Answer is Option D without any iota of doubt

    1. and what u know is about develoed countries …. NI calculation change for the developing countries

  3. mrunal sir
    CUT OFF plz……….

  4. Thanks man for your contribution . I got 16 right in Economics section . For the first time , I think I’m going to write mains [236 marks in prelims 2013]

    Once again really indebted to you .

  5. Thanks mrunal

  6. thank u mrunal. i gave upsc prelims. all the economy questions appeared so easy thanks to your blog.

  7. 16 out of 18 correct in economics…….only becuz o u!!!!!! thanks alot mrunal!!

  8. 2. Disguised unemployment generally means

    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

    The answer will be D.

    Marginal productivity for a worker in a low-productivity setting may be low positive, zero or negative (too many cooks spoiling the broth). The concept of economic term “Marginal Productivity” applies to adding/removing labour and not directly to measuring productivity as a whole (as mentioned in the question). Better answer is D.

    If we find a case where the productivity of the workers is low, it means that if we remove some workers (who were producing low amounts) and improve the skill and work quality of the rest, we can maintain/improve yield. Thus the workers removed were effectively employed at an under-capacity level. This is the case for agriculture.

    1. ah good u got me thinking again … Disguised unemployment DU in many books use concept of marginal productivity to explain the DU but the fact is in india a farm is employing 20 insted 10 not by marginal productivity concept but because of low productivity let as say 50% productivity and hence in order to get the work done it requires double the people and in turn creating false employment …….. .. its inherent cause is low productivity and not concept of marginal labour which is better used to manage the workforce

  9. Thanks mrunal. ur economy articles really helped me score in Eco especially. otherwise UPSC trumped me with no current affairs, no government schemes, n few modern history.

  10. thanx sir … got all 18 right

  11. 1. Regarding the Ques on Capital Account: Refer to page number 18.4 of Ramesh Singh. Private Remittances are part of Capital Account.

    Portfolio investment means purchase of shares and bonds, it cannot be a part of current account.

    2. Regarding question on National Income: The answer would be B as explained by one of the persons in the comments above.

    1. Shailesh ! Please Refer to NCERT XII(Economics) Page 78,line 36,it cleary mentions remittances as part of Current a/c.
      Ramesh singh has lot of mistakes.Further It’s very difficult to understand how can a book on economy be written without the help of a single graph.Take any standard textbook on economy, U will need graphs to amke the concepts clear.Ramesh Singh has none !!!!. Economy is a subbject understood well with the help of graphs and figures,i.e it requires analytical approach.

    2. Private remittances are part of “transfer payments” which in turn are part of current account.

  12. Just a mistake, portfolio investment cannot be a part of capital account.

    1. yup !
      You nailed it.

  13. thanks sir for answer key with explanation……..i got only 1 wrong. thanks….

  14. 78+160=238 fingures crossed..:-)

  15. Polity – 17 attempted= 3 wrong + 14 right economy – 18 attempted = 3 wrong+ 15 right

  16. I got 15 correct out of these 18.

  17. hey mrunal i m getting around 231 marks
    should i expect d call 4 mains……

    1. Taiyaari shuru kar de bhai.
      These morons will not stop at anything less than 20+ from the original cutoff just like every year.
      I made the same mistake last year and was left with a thin slice of preparatory time.
      Start the holy proceedings of navigating the vast and endless sea that is General Studies.

  18. Hi how dey r calculating d cut off??? Out of 360 or 400?? Anyone pls clarify

    1. U drunk or u seem to be weak in Aptitude !!!

      1. woh maara papad waale ko. Sahi bhai.

    2. ppr 2 each ques is 2.5 marks

  19. got 12 out of 18 in Economy…..very feared. All of topics covered but not properly…Only things explained by mrunal are covered properly. So plz keep it up.

  20. 0nly 2 wrongs ..most efficient ..whatever i know in economics ,is due to you ..thanks sir

  21. HELP ME !

    – i am deeply stressed after writing my prelims although i prepared but it was not as much as paper demanded.

    – i am a working professional, and since this prelim 2013, i am trapped with unstability in life = currently i think that i cannot do anything.

    – i have a scarcity of time, i take too much time to understand any topic and forget frequently…

    Please tell me how can i reduce the Mental stress facing right now and start afresh everything !:(

    1. these are some of the few things that you can follow
      1. Dont give a shit about UPSC and enjoy your life. Passing or failing CSE is not what life is about.
      2. If u got a bf/gf- take them to a movie, go for a ride etc etc. If you dont have one- try to get one.
      3. Sit in your office and day dream about or write down the speech that you will be making when you get CSE 2013 Rank 1.
      4. Stop visiting online forums where there is active discussion going on about probable cutoff. Instead find out how to make some quick money through next IPL season and start your preparations accordingly.
      5. If nothing works out- then you can do what I’m doing- Post stupid replies to these kind of questions. Or u can also visit online forums and post ridiculous comments such as- I’ve got 334.67 as per xyz key- should i start my mains preparation? or stir up a hornets nest by quoting some stupid authors and raising idiotic doubts.

      1. haha…really helpful ;)

    2. Are you in Infosys ?
      They are in the process of firing 10 percent of the company fat.

      1. They are not firing, people are leaving (but not the fat, the neurons are leaving,leaving behind the fat) :-)

    3. zenhabits.net

      Read that for mental stress and improving focus etc. It’s no magic potion, but it works.

    4. if u know my story….u will feel like an achiever. it’s all in the mind. upsc is not the end of life. if u get through,fine. if not, still fine.

  22. Mrunal Sir ,
    Many of the selected seniors are advising me not to go for public administration for mains as it has been a letdowner for many in past few years. iam a first timer & from a medical background tho’ not in position to take my own subjects ,& yes iam dud in rote, so finally it comes down to what makes or breaks the final outcome acc to new syllabus. Kindly reply, is it feasible to take pubad?

    1. better take anthropology it fetches you as physical anthropology has more than 100 marks thatinclude genetics you understand thm easily

      1. sir, what about pol-sci, & history?

        1. i mean which is more scoring of all these”?

  23. Mrunal sir…Firstly I would like to thank you from the bottom of my heart for your invaluable resources and inputs.Will always remain indebted to you. I would also like to seek your guidance and help on the crisis that i am facing.

    At the start of the paper II exam, i entered my roll number correctly in the answer sheet, however i darkened a wrong bubble beneath the roll number box. I immediately requested for the change of answer sheet but was declined. I pleaded the exam center authority however they said that its not an issue and will be taken care of during the evaluation of your answer sheet. After i completed the paper they connected me to the UPSC exam control office and the official assured and comforted me over the phone that my answer sheet will be evaluated. However i am still worried. I am confident of clearing the prelims as i am scoring around 115 in paper 1 and around 175 in paper 2. It would really be a big setback for me if my answer sheet is not evaluated. Please advise me on what should i do.Thanks once again……

    1. buddy dont worry… this happened with me in a pg entrance exam.they did evaluate. i was worried then n i made sure that i talk to someone responsible and so i talked to a high ranking official and he said atleast one of the two i.e the hall ticket number or the darkened circles should be correct.i had darkened the circles in a wrong way then. finally it was fine n i did get a rank.dont worry coz anyways the the omr sheets go in sequence.it is not a problem

  24. 1. The balance of payments of a country is a systematic record of

    capital movements from one country to another

    is the correct answer! kindly correct!

    1. Yes this is the correct answer
      the BOP reflects total capital tranfer acrosss the nation and total exports and imports only reflects Balance of trade
      total capital ( punji transfer is bop)

      1. i agree with you.how can balance of trade could be equated with balance of payment.a is not right ans d is right answer..

    2. None of the following actually defines the BOP. The Non-capital transfers i.e. under the current account are also included in the BOP.
      Check for yourself.
      Actually none of the options defines the BOP correctly and to the T.

  25. sir getting 50marks in paper 1+125 in paper2.what are my chamces for mains appearing under ortho handicapped.the marks are as per vajirams key.

  26. Hey Mrunal Genius, I rue my luck on Deficit Financing question, thanks…

  27. I owe my knowledge of Economics to you totally.
    Thanks for your great work in all mater.

  28. Hey, i want a guidance urgently..
    I didnt signed attendence list for first paper. Though i filled present circle and other details in it..scoring 250+..but gng through hell…wot shud i do now..

  29. your es notes was very useful for prelim…

  30. iam expecting arnd 215 from various answer keys available.
    wht r the chances for me??
    iam from obc category.

    1. sure u will clear prlms.work for mains

      1. yeah but…everyone is saying that they scored abt 240 or more..
        i dont knw..wht to expect..

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