Explanation:

• Statement-I: Plastic money provides hassle-free and cashless transactions, usable anytime, anywhere — hence, correct.
• Statement-II: It consists of debit, credit, prepaid, and forex cards, which allow payments in shops, online, and cash withdrawals from ATMs — correct.
• Relationship: Statement-II explains how plastic money provides convenience (Statement-I).

Explanation:

Monetary aggregates represent different categories of money based on their liquidity. Liquidity refers to how easily assets can be converted into cash, which directly affects their function as a medium of exchange or a store of value. The correct sequence from the most liquid to the least liquid is:

• M0: Also known as base money, it includes physical currency (coins and notes) in circulation and reserves held by the banks. It is the most liquid form and serves primarily as a medium of exchange.
• M1: This includes M0 plus demand deposits (like current and savings accounts), which can be quickly converted into cash for transactions, making it slightly less liquid than M0 but still primarily used as a medium of exchange.
• M2: It encompasses M1 and also includes near-money assets, such as savings deposits and time deposits that are less liquid but can still be converted into cash relatively easily.
• M3: This is the broadest category, including M2 plus large time deposits, institutional money market funds, and other larger liquid assets. M3 represents assets that are more of a store of value and less of a medium of exchange due to their lower liquidity.

The decreasing order of liquidity, M0 > M1 > M2 > M3, illustrates the shift from assets used directly for transactions to those held as a longer-term investment or store of value.

Explanation:

Broad Money (M3) in India is a measure of the total amount of money available in the economy. It is a comprehensive indicator that includes various forms of money accessible to the public and within the banking system. The components of M3 in India typically include:

1. Currency with the Public: This refers to all the currency notes and coins held by the public outside the banking system. It is a primary component of the money supply as it represents physical money in circulation.
2. Demand Deposits with Banks: These are deposits that can be withdrawn by the depositor at any time without any prior notice. They include current accounts and savings accounts that offer high liquidity. Demand deposits are a crucial part of the money supply as they can be quickly converted into cash or used for payments.
3. Time Deposits with Banks: Unlike demand deposits, time deposits, such as fixed deposits, have a fixed term and usually offer higher interest rates. While they are less liquid than demand deposits, time deposits are included in the broader money supply measure because they represent significant savings that contribute to the economy’s overall financial resources.

Therefore, all the listed components – currency with the public, demand deposits with banks, and time deposits with banks – are included in Broad Money (M3) in India, making option C) the correct answer. This question assesses the candidate’s understanding of the money supply components and their significance in the economy.

Explanation:

Treasury Bills (T-Bills) are short-term government securities issued at a discount from the face value and mature at par. They are used by governments to raise funds to meet short-term financial needs. The primary types of Treasury Bills based on their holding periods are:

1. 14-day Treasury Bill: Used primarily for very short-term funding requirements of the government.
2. 91-day Treasury Bill: A common short-term investment option.
3. 182-day Treasury Bill: Offers a medium-term investment period.
4. 364-day Treasury Bill: The longest of the commonly issued T-Bills, providing a near one-year investment period.

Option (d), the 280-day Treasury Bill, is not a standard holding period for Treasury Bills, making it the correct answer as the type that is NOT auctioned based on its holding period.

Explanation:

Short-term financial instruments are marketable securities designed to provide liquidity or finance for a short period, typically less than one year. Understanding the nature of these instruments:

1. Call Money: This is a very short-term loan, often overnight, used by banks to fulfill their immediate liquidity requirements. It is indeed a short-term financial instrument.
2. IPOs (Initial Public Offerings): While IPOs involve the issue of new shares to the public, they are not typically classified as “short-term financial instruments.” IPOs are a means for companies to raise capital for the long term rather than a liquidity or short-term financing option.
3. Deposit Certificates (often referred to as Certificates of Deposit): These are time-bound deposit instruments issued by banks with a specific maturity date and are commonly used for short-term investment purposes. They qualify as short-term financial instruments if their maturity period is within one year.
4. Trade Bills: These are commercial documents drawn by the seller on the buyer, demanding payment for goods delivered. When used in the context of bill discounting or as a part of the money market, trade bills act as short-term financial instruments facilitating short-term financing.

Therefore, Call Money, Deposit Certificates, and Trade Bills are considered short-term financial instruments due to their liquidity nature and short maturity periods. This makes option B) 1, 3, and 4 only the correct answer. This question tests the candidate’s knowledge of financial instruments and their classifications based on maturity periods.

Explanation:

Money is defined as anything that is widely accepted as a medium of exchange in the payment for goods and services or for the repayment of debts. The key functions of money include serving as a medium of exchange, a unit of account, a store of value, and sometimes, a standard of deferred payment. For something to be considered money, it must possess certain qualities:

1. Medium of Exchange: Money must act as an intermediary in the exchange process, facilitating buying and selling, which eliminates the inefficiencies of a barter system.
2. Unit of Account/Standard Unit for Quoting Prices: Money provides a common measure of the value of goods and services, making it easy to compare the worth of different items.
3. Divisibility: Money must be easily divisible into smaller units without losing its value; this allows for transactions of varying sizes.
4. Higher Value in Alternative Uses: This is not a characteristic of money. In fact, for something to function effectively as money, it should not have a higher value in alternative uses. This quality could lead to money being hoarded or consumed rather than used as a medium of exchange, thereby defeating its purpose. Money’s primary role is to facilitate transactions, not to serve as a commodity with intrinsic value in alternative uses.

Therefore, the correct answer is (a) 1, 2 and 3 only, as these characteristics define the essential roles money plays within an economy.

Explanation:

The Statutory Liquidity Ratio (SLR) is a mandate imposed by central banking authorities (in India, by the Reserve Bank of India) that requires commercial banks to maintain a certain percentage of their net demand and time liabilities in the form of liquid assets like cash, gold, and government securities. The primary objective of the SLR is to ensure the liquidity and solvency of the banks. Specifically:

1. Government Securities: These are considered safe and liquid assets, making them a preferred choice for banks to maintain their SLR.
2. Gold: Holding gold as an asset is another way banks can fulfill their SLR requirements, given its liquidity and market value.
3. Cash: Banks are required to hold a certain portion of their liabilities in cash as part of the SLR to meet immediate withdrawal demands.
4. Corporate Bonds: While corporate bonds are financial instruments, they are not typically used to maintain SLR because they are not considered as liquid or secure as government securities, gold, or cash.

Hence, the correct answer is A) 1, 2, and 3 only, indicating that government securities, gold, and cash are the financial instruments in which the SLR can be maintained. This question assesses the candidate’s understanding of the regulatory requirements for banks, particularly in the context of liquidity management.

Explanation:

When the central bank decides to increase the Cash Reserve Ratio (CRR), it effectively mandates commercial banks to keep a larger portion of their deposits as reserves with the central bank. This action has direct implications on the banking sector and the broader economy:

1. Reduced Lending Capacity: By increasing the CRR, commercial banks have less money available to lend to businesses and consumers, which can lead to a decrease in credit expansion.
2. Excess Liquidity Control: The primary motive behind increasing the CRR is to mop up excess liquidity from the banking system. This is particularly important when there is too much money chasing too few goods, leading to inflationary pressures.
3. Inflation Control: By controlling excess liquidity, the central bank aims to curb inflationary pressures. Inflation occurs when the general level of prices for goods and services rises, eroding purchasing power.
4. Monetary Policy Tool: The adjustment of the CRR is a crucial monetary policy tool used by central banks to regulate the money supply in the economy, influence interest rates, and maintain price stability.

Therefore, the central bank increases the CRR primarily to control inflation by reducing the amount of money that banks can lend, which helps moderate demand and stabilize prices in the economy.

Explanation:

Monetary policy is a financial strategy employed by a country’s central bank (or a similar regulatory organization) to control the supply of money, availability of money, and cost of money (interest rates) to achieve economic stability. To combat inflation, the central bank can:

1. Interest Rates: Increase interest rates to reduce borrowing, thereby slowing down spending and investment, which can help lower inflation.
2. Government Spending: While government spending affects the economy, it is not directly controlled by monetary policy but rather fiscal policy, which is determined by the government.
3. Money Supply: Reduce the money supply in the economy to decrease the overall spending capacity, which helps in controlling inflation.
4. Tax Rates: Like government spending, tax rates are a part of fiscal policy and are not controlled by monetary policy.

Monetary policy specifically deals with interest rates and money supply to influence economic conditions such as inflation and unemployment. Therefore, the correct answer is A) 1 and 3 only, indicating that interest rates and money supply are the tools within the purview of monetary policy to combat inflation. This question tests the candidate’s understanding of the difference between monetary and fiscal policies and their respective roles in managing the economy.

Explanation:

The Reserve Bank of India (RBI) serves as the central bank of India, with a wide range of functions aimed at regulating the country’s financial system, ensuring monetary stability, and supporting economic growth. However, accepting deposits from the general public is not one of its functions. Key functions of the RBI include:

• Issuing Bank Notes: The RBI has the sole right to issue banknotes of all denominations, except for the one rupee note, which is issued by the Ministry of Finance.
• Custodian of Foreign Currency Reserves: It holds and manages the country’s reserves of international currency, playing a crucial role in maintaining the health of India’s external sector.
• Lender of Last Resort: The RBI provides financial assistance to banks in distress, thereby ensuring stability in the banking sector.
• Banker to the Government: It manages the banking needs of the government, including operating its accounts, collecting receipts, and making payments.

The option stating that the RBI accepts deposits from the general public is incorrect, as this function is typically performed by commercial banks and not the central bank. The RBI’s role is more regulatory and supervisory in nature, focusing on the broader financial system rather than engaging in retail banking activities.

Explanation:

• Increasing the CRR and SLR means that banks are required to park GREATER amount of their assets with the Central Bank. This reduces the bank’s ability to lend to the clients. Thus, overall money supply in the economy reduces. Reducing the fiscal deficit may signify that consumption expenditure has been reduced by the government. This can also reduce the amount of money in the economy.
• Reverse Repo rate effect on inflation: If RBI increases this Reverse Repo rate, it means RBI wants to contraction of credit. When RBI gets loan from banks at high rate of interest, more and more banks will supply to central bank because it is safe and earning is more. Effect of this will on financial market. Supply of money in financial market will decrease. Due to decrease in the supply of credit in the market, inflation rate will decrease.

Some of the most important measures that must be followed to control inflation are:

1. Fiscal Policy: Reducing Fiscal Deficit

2. Monetary Policy: Tightening Credit

3. Supply Management through Imports

4. Incomes Policy: Freezing Wages.

Explanation

• Statement 1 is correct: A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remains overdue for a period of 90 days.
• Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
• Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
• Doubtful assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. Hence Statement 2 is incorrect.
• Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.

Explanation:

• Statement 1 is incorrect: Unlike banks, which are regulated solely by the Reserve Bank of India (RBI), NBFCs are regulated by multiple agencies based on their activities.
• Insurance companies are regulated by IRDAI.
• Merchant banks are regulated by SEBI.
• Microfinance institutions are regulated by State Governments, RBI, and NABARD.
• Statement 2 is incorrect: NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on themselves. Only banks have access to the payment and settlement system.
• Statement 3 is correct: NBFCs cannot accept demand deposits, meaning they cannot provide checking accounts like banks. They can, however, accept term deposits under certain conditions.

Explanation:

Statement 1 is correct.

• An Asset Reconstruction Company is a specialized financial institution that buys the NPAs or bad assets from banks and financial institutions so that the latter can clean up their balance sheets.
• Or in other words, ARCs are in the business of buying bad loans from banks. ARCs clean up the balance sheets of banks when the latter sells these to the ARCs.
• This helps banks to concentrate in normal banking activities. Banks rather than going after the defaulters by wasting their time and effort, can sell the bad assets to the ARCs at a mutually agreed value.

Statement 2 is incorrect.

• The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002; enacted in December 2002 provides the legal basis for the setting up of ARCs in India. Section 2 (1) of the Act explains the meaning of Asset Securitization. Similarly, ARCs are also elaborated under Section 3 of the Act

Explanation:

• Statement I is correct. Absolute poverty refers to a condition where a household’s income is below the threshold necessary to maintain basic living standards, including necessities such as food, shelter, and housing. This standard of poverty can be used to make comparisons across different countries and temporal periods. The World Bank’s international poverty line, often associated with absolute poverty, has been adjusted over time to reflect changes in the purchasing power of money, most recently to $1.90 a day in October 2015.
• Statement II is incorrect. Relative poverty does not compare a household’s living standards to those of the world’s poorest countries. Instead, it is concerned with the economic standards of the population within a particular country or surrounding environment. Relative poverty is typically measured as the percentage of the population earning less than a specified proportion of the median income, thus reflecting income inequality within a society rather than comparing it to an international benchmark.

Explanation:

• The Alagh Committee (1979) and the Lakdawala Committee (1993) both focused on poverty estimation in India.
• Alagh Committee (1979) determined a poverty line based on a minimum daily requirement of 2400 and 2100 calories for an adult in Rural and Urban area respectively.
• Subsequently different committees; Lakdawala Committee (1993), Tendulkar Committee (2009), Rangarajan committee (2012) did the poverty estimation.
• As per the Rangarajan committee report (2014), the poverty line is estimated as Monthly Per Capita Expenditure of Rs. 1407 in urban areas and Rs. 972 in rural areas.

Explanation:

• Population Explosion leads to higher demand for resources and jobs, stressing economic systems.
• Inefficient Resource Utilization, particularly in rural agriculture, results in underemployment and low yields.
• Unemployment remains a direct factor contributing to poverty, with more job seekers than available jobs.
• Options involving Increased Defense Spending and Advanced Digital Infrastructure are not directly linked to the causes of poverty. Defense spending concerns government budget allocations, which could indirectly affect social services but is not a direct cause of poverty. Meanwhile, advanced digital infrastructure is typically associated with economic growth and improvements in quality of life.

Explanation:

• Structural unemployment occurs when there is a long-term change in the demand patterns within an economy, often due to technological advancements, globalization, or changes in consumer preferences. This type of unemployment happens when workers’ skills do not match the job requirements of the new industries or technological environments, making it difficult for them to adapt and find employment without significant retraining or upskilling.
• An example of this can be seen when computers became widespread, and jobs that previously required manual processing needed workers who were computer literate, leaving those without such skills unemployed.

Explanation:

Causes of Unemployment include:

• Slow Economic Growth
• Increase in labour force –

1. Rapid Population Growth
2. Social Factors

• Rural – Urban Migration
• Inappropriate Technology
• Defective Educational System
• Lack of Infrastructural Development
• Lack of Employability

Explanation:

• Statement 1 is correct: The Global Multidimensional Poverty Index (MPI) was launched in 2010 by the Oxford Poverty & Human Development Initiative (OPHI) and the Human Development Report Office of the UNDP.
• Statement 2 is correct: The MPI measures acute multidimensional poverty, which includes deprivations in health, education, and standard of living across over 100 developing countries. This broad application helps in understanding the various dimensions in which poverty affects individuals and communities.
• Statement 3 is incorrect: The MPI does not exclusively measure poverty based on income levels. Instead, it takes a multidimensional approach, which includes ten indicators within three dimensions: health, education, and standard of living. These indicators cover aspects such as nutrition, child mortality, years of schooling, school attendance, cooking fuel, sanitation, water, electricity, housing, and assets, offering a comprehensive view of poverty that goes beyond mere income deprivation.

Explanation:

• Cyclical unemployment: This type of unemployment arises during periods of economic recession or depression when demand for goods and services decreases, leading to a reduction in production by businesses. Consequently, companies lay off employees, resulting in cyclical unemployment. It is directly tied to the health of the economy – increasing when the economy suffers and decreasing when the economy improves.

Explanation:

Statement 1 – Correct ✔️

• • As per the 2025 HDR, India is ranked 130th out of 193 countries and territories with an HDI value of 0.685, placing it in the medium human development category.

Statement 2 – Correct ✔️

• • The theme of the 2025 HDR is “A Matter of Choice: People and Possibilities in the Age of AI”.
  • It highlights opportunities and challenges brought by AI and digital technologies.

Statement 3 – Correct ✔️

• • The HDR is prepared and released by the United Nations Development Programme (UNDP).

👉 Hence, all three statements are correct.

⚡ Extra Enrichment for UPSC:

• India’s HDI has improved by 53% since 1990.
• India remains in the medium HDI category, but close to the high human development threshold (≥ 0.700).
• Challenges: inequality and a widening gender gap remain concerns.

Explanation:

• PMJDY → Flagship scheme launched in 2014 for universal access to banking services, including accounts, credit, insurance, and pension. Core to financial inclusion.
• APY → Provides pension coverage to workers in the unorganized sector, enabling long-term financial security through bank-linked contributions.
• PM-KISAN → Provides direct income support to farmers through DBT (Direct Benefit Transfer) into bank accounts → strengthens financial inclusion by linking farmers to the banking system.
• KCC → Provides farmers with timely and affordable institutional credit, reducing dependence on informal moneylenders → a pillar of financial inclusion in agriculture.

👉 Thus, all four schemes contribute to financial inclusion in different ways.

Explanation:

• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantees 100 days of wage employment per year to every rural household whose adult members volunteer to do unskilled manual work. This initiative is crucial in addressing rural poverty by providing a stable income source, while also creating durable assets that can enhance the rural economy and infrastructure.

Explanation:

All the statements are incorrect.

• The Union Ministry of Labour and Employment has launched the Pradhan Mantri Shram Yogi Maan-dhan Yojana (PM-SYM), a mega pension scheme for unorganised sector. The scheme was announced in the Interim Budget 2019.
• PM-SYM is a voluntary and contributory pension scheme that will engage as many as 42 crore workers in the unorganised sector.

Eligibility:

• The unorganised sector workers, with income of less than Rs 15,000 per month and who belong to the entry age group of 18-40 years, will be eligible for the scheme.
• Those workers should not be covered under New Pension Scheme (NPS), Employees’ State Insurance Corporation (ESIC) scheme or Employees’ Provident Fund Organisation (EPFO).
• He or she should not be an income tax payer.
• In case of death during receipt of pension: If the subscriber dies during the receipt of pension, his or her spouse will be entitled to receive 50 percent of the pension as family pension. This family pension is applicable only to spouse.

Explanation:

• It is operated by the Directorate General of Employment and Training, Ministry of Labour, and it runs several Employment Exchanges in order to bring about a better matching of supply-demand of work opportunities. The other objective is to create a requisite data base for manpower planning and management, career counselling and vocational guidance with a view to effectively guiding the job-seekers.

Other Functions

• Collect comprehensive Employment Market Information on a quarterly basis
• Conduct area specific specialized study/surveys to have an assessment of skills available and the marketable skills required for encouraging the job-seekers for self-employment particularly in rural informal sector
• Some of the State Governments arrange disbursement of unemployment allowance to certain specific categories of jobseekers out of their own resources through the employment exchanges as registered with them.

Explanation:

• Disguised unemployment occurs when more people are employed than actually required, especially in agriculture and informal sectors.
• The extra workers do not contribute to additional output.
• Hence, the marginal productivity of labour = 0.
• If these extra workers are withdrawn, the total production remains unchanged.
• Common in developing economies like India, particularly in the rural/agriculture sector.

Correct Option: (c)

Explanation:

• The Twelfth Five-Year Plan (2012–17) was guided by the theme “Faster, More Inclusive and Sustainable Growth.”
• Hence, the three correct descriptors are:
  • Faster (2)
  • More inclusive (3)
  • Sustainable (4)
• Other terms like Inclusive (without “more”) and More sustainable were not part of the official title.

👉 Therefore, the correct combination is 2, 3 and 4.

Explanation:

• (A) Correct – When the economy grows below potential, labour demand falls → unemployment rises.
• (B) Correct – Structural unemployment occurs due to mismatch of skills and jobs, often from automation or demand shifts.
• (C) Correct – Cyclical unemployment arises in recession, when aggregate demand and production decline.
• (D) Incorrect – At full employment, unemployment is not negative. It still includes the natural rate of unemployment (frictional + structural). Negative unemployment is impossible.

✅ Hence, the wrong statement is (D).

Explanation:

• PMKVY launched in 2015 as a Central Sector Scheme.
• Nodal Ministry: Ministry of Skill Development & Entrepreneurship (MoSD&E).
• Objective: Encourage youth to develop employable skills.
• Provides monetary rewards, recognition of prior learning, and training certification through affiliated centres.

✅ Thus, PMKVY = MoSD&E initiative.