With reference to the Indian Public Finance consider the following statements: 1. External liabilities reported in Union Budget are based on historical exchange rates 2. The continued high borrowing has kept the real interest rates high in the economy 3.

examrobotsa's picture

Submitted by examrobotsa on

Q: 87 (IAS/2002)
With reference to the Indian Public Finance consider the following statements:
1. External liabilities reported in Union Budget are based on historical exchange rates
2. The continued high borrowing has kept the real interest rates high in the economy
3. The upward trend in the ratio of Fiscal Deficit to GDP in recent years has an adverse effect to private investments.
4. Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government.
Which of these statements are correct ?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,126,196,76,45,126,75

keywords: 

{'indian public finance': [0, 0, 2, 0], 'union budget': [1, 0, 2, 2], 'interest payments': [1, 2, 3, 2], 'fiscal deficit': [0, 2, 2, 4], 'external liabilities': [0, 0, 1, 0], 'real interest rates': [0, 1, 1, 0], 'gdp': [0, 0, 0, 1], 'high borrowing': [0, 0, 1, 0], 'union government': [2, 0, 2, 1], 'economy': [1, 3, 8, 35], 'private investments': [0, 0, 1, 1], 'historical exchange rates': [0, 0, 1, 0], 'upward trend': [0, 0, 1, 0]}

The correct answer is: 2, 3, and 4.

Explanation:

1. Statement 1 is incorrect. External liabilities reported in the Union Budget are based on current exchange rates, not historical exchange rates.

2. Statement 2 is correct. High borrowing can lead to increased demand for funds, which can keep real interest rates high in the economy.

3. Statement 3 is correct. An upward trend in the ratio of Fiscal Deficit to GDP can have an adverse effect on private investments. A higher fiscal deficit indicates increased government borrowing, which can crowd out private investment and lead to higher interest rates.

4. Statement 4 is correct. Interest payments are indeed the single largest component of the non-plan revenue expenditure of the Union Government. This is because the government has to pay interest on its borrowings, which can be a significant expenditure item.

Therefore, the correct statements are 2, 3, and 4.