Indian Economy- Part 7

Indian Economy

1.In economics, what does the term 'Giffen Good' refer to?

a) A good that is considered a luxury and has an elastic demand b) A good for which demand increases as its price increases, due to the income effect outweighing the substitution effect c) A good that has a positive cross elasticity of demand with another good d)A good whose supply increases as its price increases

b) A Giffen good is a type of inferior good for which demand increases when the price increases because the income effect of a price rise dominates the substitution effect, typically seen in very low-income scenarios with basic staples.

2. Which of the following is an example of 'Forward Guidance' in monetary policy?

a) A central bank sets an explicit inflation target to manage expectations b) A central bank communicates its future policy intentions to influence expectations c) A central bank directly intervenes in foreign exchange markets d) A central bank adjusts reserve requirements for commercial banks

b) Forward guidance is a communication tool used by central banks to provide information about future monetary policy intentions to influence financial conditions, economic decisions, and inflation expectations.

3.What does the 'Lump of Labor Fallacy' assume?

a) The belief that there is a fixed amount of work available in an economy b) The notion that technological advancements lead to higher unemployment c) The idea that government intervention is necessary to create jobs d) The assumption that wages are always sticky downward

a)The Lump of Labor Fallacy is the mistaken belief that the amount of work in an economy is fixed, leading to the misconception that automation or immigration reduces job availability for native workers.

4. In the context of India's economic history, which plan is known for initiating the era of 'Economic Liberalization'?

a) First Five-Year Plan b) Fifth Five-Year Plan c) Seventh Five-Year Plan d) Eighth Five-Year Plan

d) The Eighth Five-Year Plan (1992–1997) marked the beginning of economic liberalization in India, characterized by a shift from a closed, planned economy to a market-driven economy with deregulation, reduction of import tariffs, and greater foreign investment.

5.The 'Efficient Market Hypothesis' (EMH) posits that:

a) Stock prices reflect all available information, making it impossible to consistently outperform the market b) Markets are irrational and driven primarily by investor sentiment c) Government intervention is necessary to ensure market stability d) Financial markets are always in equilibrium

a) The Efficient Market Hypothesis (EMH) suggests that financial markets are "informationally efficient," meaning that prices of securities fully reflect all available information, thus making it difficult to achieve returns greater than average market returns on a risk-adjusted basis.

6. The term 'Pareto Efficiency' in economics refers to:

a) A situation where it is impossible to make any one individual better off without making at least one individual worse off b) An allocation of resources where each person has an equal share c) A market condition where supply exactly equals demand d) A state where all resources are used up completely

a) Pareto Efficiency, or Pareto Optimality, is a state of allocation of resources in which it is impossible to make any individual better off without making someone else worse off, reflecting an optimal distribution of resources.

7.In international trade, the concept of 'Comparative Advantage' suggests that:

a) Countries should specialize in producing goods in which they have an absolute advantage b) Countries should specialize in producing goods in which they have a lower opportunity cost c) All countries benefit equally from trade, regardless of specialization d) Trade restrictions are necessary to protect domestic industries

b) Comparative Advantage suggests that countries should produce and export goods in which they have a lower opportunity cost than other countries, leading to more efficient production and beneficial trade for all.

8. In behavioral economics, what does the 'Endowment Effect' imply?

a) People prefer outcomes that are fair over those that are rational b) Individuals ascribe more value to things merely because they own them c) People tend to avoid losses more than they seek equivalent gains d) Consumers always maximize utility based on available information

a) The Endowment Effect is a cognitive bias that causes people to overvalue an object simply because they own it, often leading to irrational decision-making where selling prices exceed buying prices.

9. What does the 'Laffer Curve' illustrate in the context of taxation and government revenue?

a) A linear relationship between tax rates and tax revenue b) An inverse relationship between inflation and unemployment c) A nonlinear relationship where increasing tax rates beyond a certain point can decrease tax revenue d) A direct relationship between government spending and economic growth

c) The Laffer Curve illustrates that there is an optimal tax rate that maximizes government revenue. If tax rates are too high, they can discourage work and investment, leading to a decrease in total tax revenue.

10. In the context of game theory, what does the term 'Nash Equilibrium' refer to?

a) A situation where each player is maximizing their own payoff without considering the strategies of others b) A scenario where all players choose strategies that result in the highest possible collective payoff c) A situation where no player can benefit by changing their strategy while the other players' strategies remain unchanged d) A condition in which all players make random moves, resulting in a fair game

c) Nash Equilibrium occurs in a game when each player's strategy is optimal given the strategies of all other players. At this point, no player has an incentive to unilaterally change their strategy, as doing so would not improve their outcome.

If any answer found wrong, Please comment.

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