UPSC Prelims 2026— Question 94

This question tests crowding out effect within Fiscal Policy. It is framed as a UPSC Prelims direct conceptual question, so the important task is to identify the governing fact or relationship and then test every alternative against it. The keyed answer is Option B: A situation where Government borrowing leads to higher interest rates, which reduces private investment. The question wording should be read literally. In particular, the terms and qualifiers used in the stem determine what must be true; nearby concepts that look plausible should not be substituted for the concept actually asked. For revision, the decisive distinction is therefore the one captured by the keyed alternative rather than the superficial familiarity of any single option. This is especially important in statement-combination questions, where one incorrect component makes an entire combination incorrect. Option A is not the keyed answer. Its weakness lies in failing to satisfy the complete condition tested by the stem: it either selects an incorrect statement, omits a statement that must be included, includes an additional incorrect statement, or assigns the wrong institutional/factual relationship. Thus it should be rejected after checking the underlying rule rather than by guessing from the option pattern. Option B is correct because it is the alternative that satisfies the complete condition set in the question. It should be retained as the final answer only after the underlying statements, institutional relationship, chronology, location, definition, or factual identification has been checked individually. Option C is not the keyed answer. Its weakness lies in failing to satisfy the complete condition tested by the stem: it either selects an incorrect statement, omits a statement that must be included, includes an additional incorrect statement, or assigns the wrong institutional/factual relationship. Thus it should be rejected after checking the underlying rule rather than by guessing from the option pattern. Option D is not the keyed answer. Its weakness lies in failing to satisfy the complete condition tested by the stem: it either selects an incorrect statement, omits a statement that must be included, includes an additional incorrect statement, or assigns the wrong institutional/factual relationship. Thus it should be rejected after checking the underlying rule rather than by guessing from the option pattern. For exam preparation, the useful takeaway is to remember the underlying fiscal policy concept and the specific crowding out effect distinction, not merely the option letter. This question also illustrates why elimination should be evidence-based: first identify what each statement asserts, then verify it independently, and only after that map the surviving statements to the code. The database classification is intended to make the same PYQ searchable by year, subject, topic and subtopic for later online practice.