QUIZ – 2020: INSIGHTS STATIC QUIZ, 27 August 2020 – Economy

Solution: d)

Every economy meets with certain challenge.

• One, to ascertain the availability of the goods and services required by the population and second, the presence of the supply network.
• Every economy has to, at first, guarantee the required level of goods and services out of its production process.
• For this, proper level of production capacity should be built which requires a particular level of capital formation or investment. From where the investible funds will be managed is altogether a separate question.
• Whether the investment will come from the government, the domestic private sector or the foreigners?

Once these details are cleared and selected as per the socio-economic condition of the economy, a proper distribution network for goods and services produced is assured.

Solution: c)

Except during 2016-17, state governments have regularly met their fiscal deficit target of 3% of GDP (much lower than the Central government’s usual deficit for last one decade). This should allay a lot of apprehensions about state-level finances, especially in the wake of extensive farm loan waivers that many states announced as well as the extra burden that was put on state budgets after the UDAY scheme for the power sector was introduced in 2014-15.

However, most states ended up meeting the fiscal deficit target not by increasing their revenues but by reducing their expenditure and increasingly borrowing from the market.

Solution: c)

Total-factor productivity (TFP), also called multi-factor productivity, is usually measured as the ratio of aggregate output (e.g., GDP) to aggregate inputs. Under some simplifications about the production technology, growth in TFP becomes the portion of growth in output not explained by growth in traditionally measured inputs of labour and capital used in production.

If a nation has the same stock of land, labour and capital, and yet it achieves high rates of GDP growth consistently. If inputs are same, how does output increase over time?

Either the individual productivities of factors would have increased, or the total combined productivity of the economy has increased.

This can happen either by better technology, better infrastructure etc that improve the total factor productivity of the economy. Suppose, now a factory requires 10 hours to produce a good. With better techniques of production, the same can be achieved in 2 hours and the company can produce than ever before.

Solution: d)

Revenue expenditure consists of all those expenditures of the government which do not result in creation of physical or financial assets.

It relates to those expenses incurred for the normal functioning of the government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though some of the grants may be meant for creation of assets).

Solution: a)

RBI releases Financial Stability Report. The FSR reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, as also the resilience of the financial system. The Report also discusses issues relating to development and regulation of the financial sector.