Economy MCQs for Prelims - 27th May 2025

Welcome to today’s curated set of MCQs from the Economy segments, specially aligned with the evolving trend of the UPSC Civil Services Preliminary Examination. These questions are not just a quiz, but a resource designed to familiarize you with the exact nature of questions asked in Prelims — where static concepts are tested through a current affairs lens.

Each question below is framed using recent developments in the news and backed by clear, concise explanations to help you link dynamic events with foundational knowledge. Topics covered today include: Least Developed Countries (LDCs), The Amrit Bharat Station Scheme, Concepts surrounding Fiscal Deficit, Updates on Alternate Investment Funds (AIFs), and more...

Use this as a daily revision tool to refine your understanding, build context, and learn how UPSC frames conceptual questions from contemporary issues.

 

QUESTION 1

With reference to the Least Developed Countries (LDCs), consider the following statements:

1. These countries are characterized by low income and face deep-rooted structural challenges to achieving sustainable development.
2. The United Nations Committee for Development Policy (CDP) conducts a review of the LDC list once every five years.
3. Least Developed Countries are less susceptible to economic and environmental disturbances.

How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (a)

Explanation:
— Bangladesh is on track to exit the United Nations’ Least Developed Country (LDC) group by November 2026. This transition will result in the loss of duty-free trade privileges in markets like the European Union, prompting the country to shift its economic orientation more towards China, which could lead to frictions in trade relations with India.
— LDCs are defined as low-income nations that encounter substantial structural barriers impeding sustainable growth. Therefore, Statement 1 is correct.
— These countries are highly vulnerable to both economic and environmental shocks and often have weak human capital indicators, which makes Statement 3 incorrect.
— The Committee for Development Policy (CDP) reassesses the LDC list every three years, not five. Thus, Statement 2 is also incorrect.
— LDCs benefit from exclusive international support mechanisms, especially in areas like development aid and trade facilitation.

QUESTION 2

A situation of high fiscal deficit can be identified by which of the following indicators?

1. Increased reliance on government borrowing
2. A rise in prevailing interest rates
3. Suboptimal or wasteful government spending

Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: (d)

Explanation:
— A high fiscal deficit often points to possible inefficiencies in government expenditure. Such deficits can add inflationary pressures to the economy if not managed properly.
— To finance the gap between revenue and expenditure, the government typically borrows more from financial markets, which drives up the demand for credit and may result in higher interest rates.
— Elevated interest rates increase borrowing costs for businesses, which can discourage private investment and ultimately slow down economic growth.
— Moreover, sustained or growing fiscal deficits can constrain the government's ability to fund long-term development projects, affecting fiscal sustainability.
— Therefore, all three options—government borrowing, higher interest rates, and inefficient spending—are indicative features of a high fiscal deficit scenario.

QUESTION 3

With reference to Alternate Investment Funds (AIFs), consider the following statements:

1. These are privately pooled investment vehicles that are formed or registered in India.
2. AIFs include funds that are governed under SEBI regulations for mutual funds and collective investment schemes.
3. Specific categories, such as family trusts formed for relatives (as per the Companies Act, 1956), are exempted from mandatory registration under AIF regulations.

How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None

Answer: (b)

Explanation:
— The Reserve Bank of India (RBI) recently issued updated draft guidelines to tighten rules around investments made by regulated entities (REs) in Alternative Investment Funds (AIFs). These changes aim to increase regulatory oversight and limit potential misuse of AIF platforms.
— By definition, an AIF is any fund that is privately pooled and either established or incorporated in India. It gathers capital from qualified or sophisticated investors, which may include both Indian and foreign participants, and deploys it in accordance with a specific investment strategy for the benefit of its investors. Thus, Statement 1 is correct.
— However, AIFs do not cover mutual funds regulated by SEBI (Mutual Funds) Regulations, 1996, nor do they include schemes under SEBI (Collective Investment Schemes) Regulations, 1999, or any other SEBI-regulated fund management framework. Therefore, Statement 2 is incorrect.
— The AIF regulatory framework allows for certain exemptions from registration, such as family trusts created for the benefit of 'relatives' as outlined under the Companies Act, 1956. Hence, Statement 3 is correct.

QUESTION 4

With reference to the Suez Canal, consider the following statements:

1. Before the onset of Houthi attacks, close to 30% of global container trade passed through the Suez Canal.
2. The volume of daily trade transit through the Suez Canal increased in 2024–25 compared to 2023–24.
3. The canal facilitates approximately 8–9% of the world’s energy shipments.
4. Shipping charges in the Suez Canal area surged, nearly doubling in response to recent disruptions.

Which of the statements given above are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2, 3 and 4
(d) 1, 3 and 4

Answer: (d)

Explanation:
— The Suez Canal Authority (SCA) in Egypt has introduced a 15% discount on transit fees for cargo ships with a capacity of at least 130,000 metric tons. This step reflects the severe consequences of the Red Sea security situation on this vital maritime route that connects the Arabian Sea and Northeast Africa to the Mediterranean.
— According to International Monetary Fund (IMF) data, the Suez Canal facilitated around 30% of global container traffic prior to the escalation of Houthi attacks, and about 12–15% of global trade overall.
— Additionally, it serves as a major artery for global energy supplies, enabling the transport of approximately 8–9% of the world's energy flows. Therefore, statements 1 and 3 are accurate.
— However, based on data from PortWatch—a conflict monitoring platform managed by the IMF and Oxford University—the canal’s daily trade transit volume (TTV) dropped significantly to 484,137 metric tons as of May 11, 2025, down from 1,349,086 metric tons during the same time the previous year. Thus, statement 2 is incorrect.
— Meanwhile, freight costs in the region have witnessed a dramatic rise, with shipping rates increasing by 180%, effectively almost doubling. This has adversely affected countries like India, which rely heavily on this corridor for exports to Europe—about 80% of the trade volume is routed through the Suez Canal. Hence, statement 4 is correct.

QUESTION 5

Regarding the Amrit Bharat Station Scheme, consider the following statements:

1. It is a long-range initiative aimed at transforming railway stations throughout India.
2. The scheme emphasizes redevelopment of station infrastructure, including integration with city transport networks like bus services and metro systems, and aims to connect both sides of the city through the station premises.

Which of the above statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: (c)

Explanation:
— As part of the Amrit Bharat Station Scheme, Prime Minister Narendra Modi inaugurated 103 redeveloped railway stations across 86 districts in 18 states and Union Territories. Additionally, a new weekly train service was introduced between Bandra Terminus (Mumbai) and Bikaner Station (Rajasthan).
— This scheme represents a comprehensive long-term plan to revamp railway stations across India. It works through individualized master plans for each station, enabling phased construction and modernization tailored to the specific requirements of the location. Hence, Statement 1 is correct.
— The program is designed to enhance commuter experience by upgrading essential amenities such as platforms, waiting halls, entry and exit points, restrooms, roofing, lifts, escalators, and Wi-Fi connectivity.
— Furthermore, it promotes integrated urban transport planning by ensuring better station access from both sides of the city and seamless connectivity to other public transport options like metro systems and bus routes. Therefore, Statement 2 is also correct.
— The initiative began in 2021, with Gandhinagar becoming the first station to be revamped with modern features, including a five-star hotel. Subsequently, Rani Kamalapati Railway Station (previously Habibganj) in Bhopal was similarly modernized.

Previous Daily Subject-Wise-Quiz

Polity MCQs for Prelims - 26 May 2025