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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.

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.

Solution

✅ Correct Option: 2

Option 1 -> Describes basic sufficiency but doesn't capture the forward-looking aspect of 'ample'.

Option 2 -> Emphasizes that current reserves can meet anticipated/expected future demand for foreign exchange.

Option 3 -> Focuses on supply-demand dynamics rather than adequacy for needs.

Option 4 -> Describes confidence level but not the actual meaning of ample reserves.

Hence, Option 2: Anticipated demand for foreign goods and services can be met through incumbent foreign exchange reserve -> 'Ample' foreign exchange reserves means the country holds sufficient foreign currency to meet its expected future needs for imports, debt payments, and other international obligations. The term 'incumbent' refers to existing/current reserves, and 'anticipated demand' captures the forward-looking assessment that makes reserves 'ample' rather than just 'sufficient'. This indicates a comfortable position where the nation can confidently meet its international payment obligations without facing a balance of payments crisis -> correct

More from this set:

Question 41

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.

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 45

Trade deficits occur when

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