UPSC Prelims Practice Questions — World Bank raises India FY27 growth forecast by 50 bps

Q1. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A growth forecast revised from 6.6% to 7.1% and an inflation rate that rises from 2.0% to 2.5% have both increased by 50 basis points.
  2. A basis point expresses the change in a rate relative to its earlier value, being one-hundredth of that earlier value.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q2. With reference to the El Niño–Southern Oscillation (ENSO), which the World Bank flagged as a risk to India's growth, consider the following statements: Which of the statements given above is/are correct?

  1. During El Niño, the equatorial Pacific trade winds weaken and warm surface water shifts eastward towards the Americas.
  2. During La Niña, the trade winds become weaker than usual, so warm water accumulates off the coast of South America.
  3. El Niño is marked by abnormal cooling of surface waters in the central and eastern equatorial Pacific.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 only

Q3. Suppose an El Niño year leads to a markedly deficient southwest monsoon in India. Consider the following possible consequences: Which of the consequences given above are likely?

  1. Food inflation tends to rise as the output of rain-fed kharif crops falls.
  2. Rural consumption demand tends to weaken as farm incomes decline.
  3. Imports of farm commodities such as pulses and edible oils tend to fall, easing the current account deficit.
  4. Rural wage growth tends to accelerate as the demand for farm labour rises.
  • A. 2 and 4 only
  • B. 1 and 2 only
  • C. 1, 3 and 4 only
  • D. 1, 2 and 3 only

Q4. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. The World Bank counts India's predominantly rupee-denominated public debt among the factors that make the economy resilient to external headwinds.
  2. When public debt is denominated in the domestic currency, a depreciation of that currency does not mechanically raise the domestic-currency value of the outstanding debt.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q5. For an economy that imports most of the crude oil it consumes, such as India, consider the following possible effects of a sustained rise in global oil prices: Which of the effects given above are likely?

  1. A wider current account deficit
  2. Depreciation pressure on the domestic currency
  3. Higher domestic inflation through fuel and transport costs
  4. An improvement in the country's terms of trade
  • A. 1, 2 and 3 only
  • B. 2, 3 and 4 only
  • C. 1, 2, 3 and 4
  • D. 1 and 2 only

Q6. With reference to capital-flow volatility triggered by a sharp correction in global stock markets, consider the following statements in the Indian context: Which of the statements given above is/are correct?

  1. Foreign portfolio investors may sell Indian equities and bonds, putting downward pressure on the rupee.
  2. When the RBI sells foreign currency from its reserves to steady the rupee, it absorbs rupee liquidity from the domestic banking system.
  3. Large foreign exchange reserves allow the central bank to meet sudden outflows without the exchange rate having to absorb the entire adjustment.
  • A. 1 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q7. A sharp and sustained rise in global crude prices poses a policy dilemma for the central bank of a large oil-importing economy that targets inflation. Which one of the following best explains why?

  • A. Such a shock typically raises inflation while also accelerating output growth.
  • B. Such a shock typically lowers inflation while also weakening output growth.
  • C. Such a shock typically raises inflation while also weakening output growth.
  • D. Such a shock typically lowers inflation while also accelerating output growth.