Insights Static Quiz -288, 2019
Economy
INSIGHTS STATIC QUIZ 2019
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Question 1 of 5
1. Question
Consider the following statements about the consequences of Devaluation of currency.
- Exporters become more competitive in a global market.
- It favors an improved balance of payments.
- Reduce the cost of interest payments on its outstanding government debts.
Which of the above statements is/are correct?
Correct
Solution: d)
Devaluation is the deliberate downward adjustment of the value of a country’s money relative to another currency, group of currencies, or currency standard.
Currency devaluations can be used by countries to achieve economic policy. Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts.
Boost Exports: exporters become more competitive in a global market. Exports are encouraged while imports are discouraged.
Shrink Trade Deficits: Exports will increase and imports will decrease due to exports becoming cheaper and imports more expensive. This favors an improved balance of payments as exports increase and imports decrease, shrinking trade deficits.
Reduce Sovereign Debt Burdens: A government may be incentivized to encourage a weak currency policy if it has a lot of government-issued sovereign debt to service on a regular basis. If debt payments are fixed, a weaker currency makes these payments effectively less expensive over time.
Incorrect
Solution: d)
Devaluation is the deliberate downward adjustment of the value of a country’s money relative to another currency, group of currencies, or currency standard.
Currency devaluations can be used by countries to achieve economic policy. Having a weaker currency relative to the rest of the world can help boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts.
Boost Exports: exporters become more competitive in a global market. Exports are encouraged while imports are discouraged.
Shrink Trade Deficits: Exports will increase and imports will decrease due to exports becoming cheaper and imports more expensive. This favors an improved balance of payments as exports increase and imports decrease, shrinking trade deficits.
Reduce Sovereign Debt Burdens: A government may be incentivized to encourage a weak currency policy if it has a lot of government-issued sovereign debt to service on a regular basis. If debt payments are fixed, a weaker currency makes these payments effectively less expensive over time.
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Question 2 of 5
2. Question
Which of the following transactions comes under the current account of Balance of Payments?
- Transactions in goods and services
- Investment income
- International asset transactions
- Foreign aid
Select the correct code:
Correct
Solution: c)
The balance of payments (BOP), also known as balance of international payments, summarizes all transactions that a country’s individuals, companies and government bodies complete with individuals, companies and government bodies outside the country. These transactions consist of imports and exports of goods, services and capital, as well as transfer payments, such as foreign aid and remittances.
The balance of payments divides transactions in two accounts: the current account and the capital account.
The current account includes transactions in goods, services, investment income and current transfers (remittances, gifts, grants etc.).
The capital account, includes transactions in financial instruments (FDI, FPI etc.) and central bank reserves.
Incorrect
Solution: c)
The balance of payments (BOP), also known as balance of international payments, summarizes all transactions that a country’s individuals, companies and government bodies complete with individuals, companies and government bodies outside the country. These transactions consist of imports and exports of goods, services and capital, as well as transfer payments, such as foreign aid and remittances.
The balance of payments divides transactions in two accounts: the current account and the capital account.
The current account includes transactions in goods, services, investment income and current transfers (remittances, gifts, grants etc.).
The capital account, includes transactions in financial instruments (FDI, FPI etc.) and central bank reserves.
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Question 3 of 5
3. Question
Consider the following statements about Gross Domestic Product (GDP).
- It is the aggregate value of goods and services produced within the domestic territory of a country.
- It includes the replacement investment of the depreciation of capital stock.
Which of the above statements is/are correct?
Correct
Solution: c)
Gross Domestic Product (GDP) Aggregate value of goods and services produced within the domestic territory of a country. It includes the replacement investment of the depreciation of capital stock. (Glossary of class 12 – Macroeconomics)
Incorrect
Solution: c)
Gross Domestic Product (GDP) Aggregate value of goods and services produced within the domestic territory of a country. It includes the replacement investment of the depreciation of capital stock. (Glossary of class 12 – Macroeconomics)
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Question 4 of 5
4. Question
In the annual budget documents of the Government of India, ‘Primary Deficit’ refers to
Correct
Solution: d)
Primary Deficit: We must note that the borrowing requirement of the government includes interest obligations on accumulated debt. To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments
Gross primary deficit = Gross fiscal deficit – net interest liabilities
Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending.
Incorrect
Solution: d)
Primary Deficit: We must note that the borrowing requirement of the government includes interest obligations on accumulated debt. To obtain an estimate of borrowing on account of current expenditures exceeding revenues, we need to calculate what has been called the primary deficit. It is simply the fiscal deficit minus the interest payments
Gross primary deficit = Gross fiscal deficit – net interest liabilities
Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending.
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Question 5 of 5
5. Question
Which of the following action/actions can be taken by the Government to reduce the deficit budget?
- Reducing revenue expenditure
- Introducing new welfare schemes
- Rationalizing subsidies
- Reducing import duty
Select the correct answer using the code given below.
Correct
Solution: c)
Statement 1: Unnecessary revenue expenditure bloats the fiscal deficit, and since it forms the majority of government spending, its reduction has a very large effect on the fiscal deficit.
Statement 2: It will further increase the fiscal deficit.
Statement 3: Subsidies are a major component of government spending, and its reduction will cut down fiscal deficit.
Statement 4: It reduces tax revenue and thus increases fiscal deficit.
Incorrect
Solution: c)
Statement 1: Unnecessary revenue expenditure bloats the fiscal deficit, and since it forms the majority of government spending, its reduction has a very large effect on the fiscal deficit.
Statement 2: It will further increase the fiscal deficit.
Statement 3: Subsidies are a major component of government spending, and its reduction will cut down fiscal deficit.
Statement 4: It reduces tax revenue and thus increases fiscal deficit.