UPSC Prelims 2015 GS Paper I · Q94 of 100 Economy easy

The problem of international liquidity is related to the non-availability of

  1. (a) goods and services
  2. (b) gold and silver
  3. (c) dollars and other hard currencies ✓ UPSC's answer
  4. (d) exportable surplus

Why the answer is (c)

• International liquidity is the stock of internationally acceptable means of payment — chiefly US dollars and other hard (freely convertible) currencies, gold and SDRs — that countries hold to settle balance-of-payments deficits.

• The 'problem of international liquidity' is the shortage of such reserve assets, especially dollars, relative to world trade needs; the IMF created SDRs in 1969 to address it — option (c).

• Goods (a), gold and silver alone (b) and exportable surplus (d) are not what the term refers to.

• Hence option (c).

Why the other options are wrong

(a) goods and services
Liquidity concerns means of payment, not goods.
(b) gold and silver
Gold and silver alone are not the modern reserve assets.
(d) exportable surplus
Exportable surplus is a trade concept, not liquidity.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2015, held on 23 August 2015. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

Reading the answer is not the same as getting it right under a clock. Practise this question with UPSC's negative marking, and anything you miss goes into an error notebook until you get it right twice.

Practise this paper free