1. Which of the following concepts is used to find the value by which the cost of a good has risen from its cost in the base year?
(a) GDP Deflator
(b) Real Gross Domestic Product
(c) Nominal Gross Domestic Product
(d) Gross Value Added (GVA)
Answer: (a) Explanation: GDP Deflator is the ratio of nominal GDP to real GDP. It gives us the value by which the cost of a good or service has risen from its cost in the base year. It is a measure of inflation. This ratio helps show the extent to which the increase in gross domestic product GDP has happened on account of higher prices rather than increase in output. Nominal GDP differs from real GDP as the former doesn’t include inflation, while the latter does. As a result, nominal GDP will most often be higher than real GDP in an expanding economy.
The formula to find the GDP deflator:
GDP deflator = (nominal GDP ÷ real GDP) x 100
Hence, option (a) is the correct answer.
2. The Reserve Bank of India (RBI) is the main authority for deciding the monetary policy of India. Which of the following Monetary Policy instruments is/are used by the RBI?
(1) Repo Rate
(2) Liquidity Adjustment Facility
(3) Market Stabilization Scheme (MSS)
(4) Open Market Operations
Select the correct answer using the code below:
(a) 2 only
(b) 2, 3 and 4 only
(c) 1, 2 and 4 only
(d) 1, 2, 3 and 4
Answer: (d) Explanation: There are several direct and indirect instruments that are used for implementing monetary policy. Repo Rate, Reverse Repo Rate, Marginal Standing Facility (MSF), Bank Rate, Cash Reserve Ratio (CRR), Statutory Reserve Ratio (SLR) are the instruments of monetary policy.
Point 1 is correct. Repo Rate: Repo rate refers to the rate at which commercial banks borrow money from the Reserve Bank of India (RBI) in case of shortage of funds. It is basically used by the RBI to keep inflation under control. Point 2 is correct. Liquidity Adjustment Facility (LAF): The LAF consists of overnight as well as term repo auctions. It is also an instrument of the monetary policy. Point 3 is correct. Market Stabilization Scheme (MSS): This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed from the market through sale of short-dated government securities and treasury bills. The cash so mobilized is held in a separate government account with the Reserve Bank. Point 4 is correct. Open Market Operations (OMOs): These include both, outright purchase and sale of government securities for injection and absorption of durable liquidity, respectively
3. With reference to the Fiscal Policy which of the following curves have a direct relationship with the tax rate and tax collection?
(1) Lorenz Curve
(2) J Curve
(3) Laffer Curve
(4) Phillips Curve
Select the correct answer using the code given below:
(a) 3 only
(b) 2 and 3 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4
Answer: (a) Explanation: Laffer Curve: The Laffer Curve best explains taxation phenomenon. Tax collection, according to the economist Arthur Laffer, will be zero when the tax rate is either 0% or 100%. Between these two extremes, it will first rise with every increase in the marginal rate, reach an optimum, and then begin to decline with every successive increase in this rate. J curve: The J-curve, in economics, explains the phenomenon where a country's balance of trade initially worsens following a devaluation or depreciation of its currency, before it recovers to a higher level than where it started. Phillips curve: The concept behind the Phillips curve states that the change in unemployment within an economy has a predictable effect on price inflation. Lorenz curve: It is a graphical representation of the distribution of income or wealth. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.
4. Consider the following statements regarding Micro Units Development and Refinance Agency (MUDRA) Bank:
(1) MUDRA Bank lends directly to the micro entrepreneurs/individuals.
(2) MUDRA loans can be availed of from nearby branch office of a bank and Micro Finance Institutes (MFIs) but not from Non-Banking Financial Companies (NBFCs).
(3) The Tarun category under MUDRA scheme has a provision of a loan upto a limit of Rs 50,000.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) None of the above.
Answer: (d) Explanation: Statement 1 incorrect. MUDRA is a refinancing Institution. MUDRA do not lend directly to the micro entrepreneurs/ individuals. Statement 2 is incorrect. Mudra loans under Pradhan Mantri Mudra Yojana (PMMY) can be availed of from nearby branch office of a bank, NBFC, MFIs etc. Statement 3 is incorrect. Under the MUDRA scheme, there are following three categories: 1. Shishu category covers loans up to Rs. 50,000. 2. Kishore category covers loans above Rs. 50,000 and up to Rs. 5 Lakhs. 3. Tarun category covers loans above Rs. 5 Lakhs and up to Rs. 10 Lakhs.
5. Consider the following statements about the foreign exchange market:
(1) If real exchange rate is equal to one, currencies are at purchasing power parity.
(2) Purchasing power parity is often taken as a measure of a country's international competitiveness.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (a) Explanation:
Statement 1 is correct. Real exchange rate is the ratio of foreign to domestic prices, measured in the same currency. If the real exchange rate is equal to one, currencies are at purchasing power parity. Statement 2 is incorrect. The real exchange rate (not Purchasing Power Parity) is often taken as a measure of a country’s international competitiveness.