QUIZ – 2020: INSIGHTS STATIC QUIZ, 28 February 2020 – Economy

Solution: b)

Consumer welfare refers to the individual benefits derived from the consumption of goods and services. In theory, individual welfare is defined by an individual’s own assessment of his/her satisfaction, given prices and income. Exact measurement of consumer welfare therefore requires information about individual preferences. The central idea in consumer welfare is to enhance consumer surplus which is the difference between what people prefer to pay and what they actually pay. The greater the difference, higher is the surplus. It means that the market is allocating goods most efficiently (at competitive prices) to people.

Solution: c)

Peer to peer (P2P) lending is a form of crowdfunding used to raise unsecured loans which are re-paid with interest. Crowdfunding refers to financing of projects with small amounts of money raised from a large number of people, with a portal serving as an intermediary. It utilises an online platform which serves as a link between borrowers and lenders. RBI vide a Notification on 24th August, 2017, enabled P2P entities as Non-Banking Financial Company (NBFC). However, an existing NBFC will not be able to operate as an NBFC-P2P.  Minimum networth requirement for these platforms is kept at Rs. 2 Cr. The borrower can either be an individual or a legal person (say a body of individuals, a HUF, a firm, a society or any artificial body, whether incorporated or not) requiring a loan. The interest rate is not to be fixed by the platform. The interest rate for each and every loan is to be fixed separately over the electronic platform by way of a mutual agreement between the borrower and lender. Fund transfer between participants on the P2P lending platform will happen through escrow account mechanisms. All fund transfers shall be through and from bank accounts, and cash transactions are strictly prohibited.

Solution: b)

There is a strong connection between the government’s tax revenue earnings and economic growth. The simple fact is that as the economy achieves faster growth, the tax revenue of the government also goes up. Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP. It refers to the responsiveness of tax revenue growth to changes in GDP. When a tax is buoyant, its revenue increases without increasing the tax rate.

Solution: c)

An expansionary is a macroeconomic policy that seeks to encourage economic growth or combat inflationary price increases by expanding the money supply, lowering interest rates, increasing government spending or cutting taxes. Increasing the tax rate is not an example of expansionary fiscal policy.

Solution: d)

Main Functions

Monetary Authority:

• Formulates, implements and monitors the monetary policy.
• Objective: maintaining price stability while keeping in mind the objective of growth.

Regulator and supervisor of the financial system:

• Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
• Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

• Manages the Foreign Exchange Management Act, 1999.
• Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency:

• Issues and exchanges or destroys currency and coins not fit for circulation.
• Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role

• Performs a wide range of promotional functions to support national objectives.

Related Functions

• Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

Banker to banks: maintains banking accounts of all scheduled banks.