Indian Economy- Part 3

Indian Economy

1. Which of the following measures is likely to lead to 'Cost-Push Inflation'?

a) Increase in consumer demand b) Decrease in interest rates c) Increase in wages and production costs d) Increase in foreign exchange reserves

c) Cost-push inflation occurs when the overall price levels rise due to increases in the cost of wages and raw materials. This type of inflation results from a decrease in aggregate supply due to increased production costs.

2. The 'Laffer Curve' illustrates the relationship between which two variables?

a) Tax rates and tax revenue b) Inflation and unemployment c) nterest rates and investment d) Government spending and economic growth

a) The Laffer Curve demonstrates the theoretical relationship between tax rates and the amount of tax revenue collected by governments. It suggests that there is an optimal tax rate that maximizes revenue without overburdening taxpayers.

3. In the context of India's agriculture sector, what is 'Minimum Support Price' (MSP)?

a) The minimum price at which the government buys crops from farmers b) The lowest price at which retailers can sell agricultural produce c) The price at which crops are exported to international markets d) The base price for agricultural insurance claims

a) The Minimum Support Price (MSP) is a government-set price at which it purchases crops from farmers to ensure they receive a minimum income and to prevent them from making losses in case of a market price crash.

4. Which of the following best describes 'Liquidity Trap' in economics?

a) A situation where interest rates are high, but borrowing is low b) A situation where monetary policy becomes ineffective because nominal interest rates are already at or near zero c) A situation where there is excess liquidity in the banking system d) A situation where foreign exchange reserves increase sharply

b) A liquidity trap occurs when low-interest rates and a high amount of cash balances do not stimulate additional borrowing and spending, rendering monetary policy ineffective. This usually happens in a recession or depression.

5. What is the 'Phillips Curve' used to illustrate?

a) The relationship between GDP growth and foreign direct investment b) The relationship between unemployment and inflation c) The relationship between interest rates and investment d) The relationship between tax rates and government revenue

b) The Phillips Curve represents the inverse relationship between the rate of unemployment and the rate of inflation in an economy. It suggests that lower unemployment comes with higher inflation and vice versa.

6. The 'Marginal Propensity to Consume' (MPC) is defined as:

a) The total consumption expenditure as a percentage of total income b) The change in consumption resulting from a change in income c) The change in savings resulting from a change in consumption d) The proportion of total income spent on non-essential goods

b) Marginal Propensity to Consume (MPC) is the proportion of any additional income that a consumer spends on goods and services rather than saving it. It is a key concept in Keynesian economics.

7. What is meant by the term 'Repo Rate' in the context of the Reserve Bank of India's monetary policy?

a) The rate at which the RBI lends short-term money to commercial banks b) The rate at which commercial banks lend to the RBI c) The interest rate on savings accounts offered by commercial banks d) The rate at which the government borrows money from international markets

a) The Repo Rate is the rate at which the Reserve Bank of India lends money to commercial banks in the short term. It is a tool used to control inflation and regulate liquidity in the economy.

8. What is the primary objective of the 'Statutory Liquidity Ratio' (SLR) in India?

a) To ensure banks have sufficient cash reserves for day-to-day operations b) To maintain liquidity in the financial system c) To prevent banks from becoming too dependent on short-term borrowing d) To ensure banks have enough liquid assets to meet their liabilities

d) The Statutory Liquidity Ratio (SLR) is the minimum percentage of deposits that a bank must maintain in the form of liquid cash, gold, or other securities. It is a requirement set by the Reserve Bank of India to ensure that banks have sufficient liquidity to meet their obligations.

9. What does the 'Harrod-Domar Growth Model' primarily emphasize for economic growth?

a) The role of human capital and technology b) The importance of balanced budget policies c) The need for a balance between savings and investment rates d) The impact of foreign trade on domestic industries

c)The Harrod-Domar Growth Model emphasizes that economic growth depends on the rate of savings and the productivity of capital investment. It suggests that for an economy to grow, the level of savings must match the necessary level of investment.

10. What is the primary function of the 'Balance of Payments' (BoP) in an economy?

a) To record the income distribution among different sectors of the economy b) To measure the total output produced within an economy's borders c) To record all economic transactions between residents of a country and the rest of the world d) To track the internal distribution of taxes within a country

c) The Balance of Payments (BoP) is a comprehensive record of all economic transactions between residents of a country and the rest of the world over a specific period. It includes the trade balance, foreign investments, loans, and financial transfers, and is crucial for understanding a country's economic relationship with other nations.

If any answer found wrong, Please comment.

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