Economy: previous-year questions
347 real UPSC Prelims questions (2011–2026) with the official answer and a clear explanation. 96 of them came in the last five papers.
How often UPSC asks this
Questions per year, counted from the official papers.
Subtopics
Agriculture, food security and allied sectors
81 questions
Economic development, reports and indices
28 questions
Economic growth, planning and national income
7 questions
External sector and international economic institutions
70 questions
Financial markets and instruments
36 questions
Fiscal policy, budget and taxation
51 questions
Industry, infrastructure, poverty, employment and social sector
125 questions
Money, banking, monetary policy and inflation
85 questions
Attempt the questions
Newest papers first. Tap an option; the answer and the reason appear instantly.
With reference to the Finance Commission of India, which of the following statements is correct ?
Answer (d) & explanation
None of the statements is correct (d). The Finance Commission under Article 280, set up every five years, recommends how the net proceeds of central taxes are shared between the Union and the States (vertical) and among States (horizontal), the principles of grants-in-aid, and measures to strengthen local bodies' finances. (a) is wrong: it does not deal with foreign capital. (b) is wrong: it has no role in distributing funds among PSUs. (c) is wrong: transparency in financial administration is not its job, though the CAG audits accounts.
Notice the current one: the 16th Finance Commission (chair Arvind Panagariya) kept the States' share at 41% for 2026–31. Trap: (c) sounds generic and safe, but it is not the Commission's function.
Answer as per the official UPSC answer key.
India is regarded as a country with “Demographic Dividend”. This is due to
Answer (b) & explanation
The answer is (b). A demographic dividend is the economic growth potential that arises when a large share of the population is of working age (15-64), with fewer dependants (children and elderly) to support. More workers, savings and investment can speed up growth, provided they are healthy, educated and employed. Option (a), a high under-15 population, means a high dependency burden. Option (c), many elderly, means an ageing society, like Japan. Option (d), a high total population, is not by itself a dividend.
Notice India's position: about two-thirds of Indians are of working age, and the median age is around 28-29. India's dividend window is expected to last until about the 2040s. To reap it, India needs skilling (Skill India, PMKVY), quality education, health and jobs; otherwise it becomes a 'demographic disaster'. India became the world's most populous country in 2023. Trap: working-age share, not total size, defines the dividend.
Answer as per the official UPSC answer key.
With reference to micro-irrigation, which of the following statements is/are correct ?
- 1. Fertilizer/nutrient loss can be reduced.
- 2. It is the only means of irrigation in dry land farming.
- 3. In some areas of farming, receding of ground water table can be checked.
Select the correct answer using the codes given below :
Answer (c) & explanation
Statements 1 and 3 are correct (c). Micro-irrigation, through drip and sprinklers, puts water right at the roots; fertiliser dissolved in it (fertigation) is used better, so nutrient loss is reduced (1). Because far less water is used, less groundwater is pumped, which can check the falling water table (3). Statement 2 is wrong: it is not the only means of irrigating dry land; tanks, wells, check dams and watershed works are also used. So (a), (b) and (d) fail.
Notice the scheme: 'Per Drop More Crop', part of PM Krishi Sinchayee Yojana (2015), funds drip and sprinklers, and the Micro Irrigation Fund with NABARD supports states. Trap: 'only' makes statement 2 an overstatement.
Answer as per the official UPSC answer key.
Which one of the following is *not* a feature of “Value Added Tax” ?
Answer (d) & explanation
Statement (d) is not a feature of VAT, so it is the answer. Value Added Tax, introduced in most Indian States from April 2005, was a multi-point, destination-based tax (a). It taxed the value added at each stage of production and distribution, with input tax credit for tax already paid, avoiding the cascading 'tax on tax' (b). Its burden was finally borne by the consumer (c). But VAT was a State subject that replaced State sales tax; the Centre only facilitated it through the Empowered Committee of State Finance Ministers. So (d) reverses the roles.
Notice what came next: VAT was subsumed into the Goods and Services Tax (GST) from 1 July 2017, after the 101st Amendment (2016), with the GST Council under Article 279A. GST 2.0 reforms in September 2025 moved to mainly two slabs, 5% and 18%. Trap: VAT was a State tax, with the Centre as facilitator.
Answer as per the official UPSC answer key.
What is the difference between “vote-on-account” and “interim budget” ?
- 1. The provision of a “vote-on-account” is used by a regular Government, while an “interim budget” is a provision used by a caretaker Government.
- 2. A “vote-on-account” only deals with the expenditure in Government’s budget, while an “interim budget” includes both expenditure and receipts.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Statement 2 only is correct (b). A vote on account (Article 116) lets the Lok Sabha grant money for expenditure only, usually for a few months, until the full budget is passed. An interim budget is a full statement of both expenditure and receipts, presented when a government cannot present a full budget, typically in an election year (2). Statement 1 is wrong: any government, regular or outgoing, can use either device; neither is reserved for a caretaker government. So (a), (c) and (d) fail.
Notice the practice: in election years such as 2019 and 2024, the outgoing government presented an interim budget with a vote on account, and the new government presented the full budget later. Trap: the government types in statement 1 are invented.
Answer as per the official UPSC answer key.
A “closed economy” is an economy in which
Answer (d) & explanation
The answer is (d). A closed economy has no trade with the rest of the world: neither exports nor imports, and usually no international capital flows. It is mostly a theoretical model used in economics to study an economy on its own. Option (a), full control of money supply, describes monetary policy, not openness. Option (b), deficit financing, is a fiscal method. Option (c), only exports, is still trade, so it is not a closed economy.
Notice the contrast: an open economy trades goods, services and capital with other countries. In macroeconomics, a closed economy's output is C + I + G, while an open economy adds net exports (X − M). India was relatively closed before the 1991 reforms (LPG: liberalisation, privatisation, globalisation), which opened it to trade and investment. Trap: 'only exports' is still an open economy.
Answer as per the official UPSC answer key.
Regarding the International Monetary Fund, which one of the following statements is correct ?
Answer (c) & explanation
It grants loans to only member countries is correct (c). The IMF (1944, Bretton Woods) lends only to its 190 member countries, mainly to fix balance-of-payments problems, often with conditions. Each member pays a quota that sets its voting power and how much it can borrow. (a) is wrong: non-members cannot borrow. (b) is wrong: most IMF loans now go to developing and emerging economies. (d) is wrong: loans go to member governments, usually routed through their central banks or treasuries, not to any central bank on its own.
Notice the wider frame: the IMF's reserve asset is the SDR, valued against five currencies, including the yuan since 2016. Kristalina Georgieva began her second term as Managing Director in October 2024. India borrowed from the IMF in 1991.
Answer as per the official UPSC answer key.