Insights Static Quiz -392, 2019–Economy

Solution: c)

Maximization of profit was not a motive behind state intervention.

            Solution: b)

The Reserve Bank has constituted a working group that will review the regulatory and supervisory framework for core investment companies. The six-member working group is to be headed by Tapan Ray.

CICs are non-banking financial companies with asset size of ₹100 crore and above which carry on the business of acquisition of shares and securities, subject to certain conditions.

CICs, which are allowed to accept public funds, hold not less than 90% of their net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.

CICs having asset size of below Rs 100 crore are exempted from registration and regulation from the RBI, except if they wish to make overseas investments in the financial sector.

Solution: b)

Repo Rate: The (fixed) interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF).

Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements or repos. LAF is used to aid banks in adjusting the day to day mismatches in liquidity (frictional liquidity deficit/surplus).

Open Market Operations (OMOs): These include both, outright purchase and sale of government securities, for injection and absorption of durable liquidity, respectively.

Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system.

            Solution: b)

When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. Economists describe demand-pull inflation as a result of too many dollars chasing too few goods.

If a government reduces taxes, households are left with more disposable income in their pockets. This, in turn, leads to increased consumer spending, thus increasing aggregate demand and eventually causing demand-pull inflation.

Cost-push inflation is when prices go up.

Solution: a)

According to Article 114 of the Indian constitution, no money can be withdrawn from the Consolidated Fund of India to meet specified expenditure except under an appropriation made by Law. Similarly, State (sub-national) Governments can also draw from their Consolidated Funds only after an appropriation act is passed.

Every year, after budgetary estimates are approved, an Appropriation Bill is passed by the Parliament/state legislature and then it is presented to the President/Governor.

After the assent by the President/governor to the bill, it becomes an Act.

However, if during the course of the financial year, the funds so appropriated are found to be insufficient, the Constitution provides for seeking approval from the Parliament or State Legislature for supplementary grants.

Borrowing from World Bank is not a part of revenue receipts.

Under Article 112 of the Constitution of India, the Annual Financial Statement has to distinguish expenditure of the Government on revenue account from other expenditures. Government Budget, therefore, comprises of Revenue Budget and Capital Budget.

Revenue Budget consists of the revenue receipts of Government (tax revenues and other revenues like interest and dividend on investments made by Government, fees, and other receipts for services rendered by Government) and the expenditure met from these revenues.