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CUET Economics 2025 PYQs28 May Shift 1. Free, no login required.

Macro

past year questions, CUET Economics 2025 28 May Shift 1

Balance of Payments

past year questions, Macro, CUET Economics 2025 28 May Shift 1

Medium

Comprehension:

Read the given paragraph carefully and answer the following questions.

Government Budget

The Indian economy is on a strong wicket and stable footing, demonstrating resilience in the face of geopolitical challenges. The Indian economy has consolidated its post-Covid recovery with policymakers – fiscal and monetary – ensuring economic and financial stability. Nonetheless, change is the only constant for a country with high growth aspirations. For the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment and climate. The headline inflation rate is largely under control, although the inflation rate for some specific food items is elevated. The trade deficit was lower in FY24 than in FY23, and the current account deficit for the year is around 0.7% of GDP. In fact, the current account registered a surplus in the last quarter of the financial year. Foreign exchange reserves are ample. Public investment has sustained capital formation in the last several years even as the private sector shed its balance sheet blues and began investing in FY22. Now, it has to receive the baton from the public sector and sustain the investment momentum in the economy. The signs are encouraging. National income data show that non-financial private-sector capital formation, measured in current prices, expanded vigorously.

With reference to the above passage, the current account comprises?

  1. Exports and Imports of visible items only.
  2. Exports and imports of visible and invisible items and external borrowings.
  3. Exports and imports of goods & services plus transfer payments.
  4. Short Term Debt.

Solution

✅ Correct Option: 3

Option 1 -> Incorrect. Current account includes more than just visible items (goods).

Option 2 -> Incorrect. External borrowings are part of capital/financial account, not current account.

Option 3 -> Correct. Current account comprises trade in goods and services plus transfer payments.

Option 4 -> Incorrect. Short term debt belongs to capital/financial account.

Hence, Option 3: Exports and imports of goods & services plus transfer payments -> The current account is a component of the balance of payments that records a country's transactions with the rest of the world. It includes: (1) Trade in goods/merchandise - visible items, (2) Trade in services - invisible items like tourism, banking, insurance, (3) Primary income - investment income, compensation, and (4) Secondary income - transfer payments like remittances, grants, and foreign aid. External borrowings and debt are recorded in the capital and financial account, not the current account. -> correct

More from this set:

Question 42

The headline inflation rate is largely under control, although the inflation rate for some specific food items is elevated.

In the above statement, what is meant by control?

  1. Within the range of the acceptable inflation rate.
  2. Price rise of basic consumption item is not in control.
  3. Price of items for daily consumption are growing in such a manner that they are manageable through implementing policy tools if need arises.
  4. No price rise has been witnessed.

Question 43

Which combination among the following represents a Geopolitical challenge in the economy.

A. Rise in inflation due to war and other natural calamities.

B. Fluctuation in economic benchmarks due to unstable government.

C. Impacting Balance of Payment due to economic sanctions on a country.

D. Failure of a firm led to a reduction in profit making.

  1. (A), (C) and (D) only
  2. (A), (B), (C) and (D)
  3. (A), (B) and (C) only
  4. (A) and (D) only

Question 44

Foreign exchange reserves are ample, means?

  1. Reserve is sufficient to purchase goods and services from abroad.
  2. Anticipated demand for foreign goods and services can be met through incumbent foreign exchange reserve.
  3. Supply of foreign reserves is more than demand of foreign reserves.
  4. Government is confident about present and future need of foreign reserve.

Question 45

Trade deficits occur when

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