QUIZ – 2020: INSIGHTS STATIC QUIZ, 3 September 2020 – Economy

Solution: a)

In simple terms, inflation is basically too much money chasing too few goods, or excess demand chasing limited supply. In both these cases, the prices of goods rise faster as individual consumers bid higher in order to get the good.

Excess supply is likely to bring prices down, not high.

If income rises faster, demand for goods and services will also rise. On the other hand, if the economy is unable to satisfy the increased demand, for e.g. due to poor infrastructure, lack of production etc, the higher income will spiral the prices upwards and lead to high inflation.

Solution: c)

GDP at market prices calculates total value of goods and services produced within a year at market prices.

If it increases, it means entrepreneurs have decided to produce more goods and services.

This can happen even without an increase in actual investment, with the same machinery and labour.

If the size of economy grows proportionately larger each year, while the growth rate is positive, it may not necessarily be increasing. So, statement 1 is incorrect.

Solution: a)

The current account records exports and imports in goods and services and transfer payments.

• Trade in services denoted as invisible trade (because they are not seen to cross national borders).
• Transfer payments are receipts which the residents of a country receive ‘for free’, without having to make any present or future payments in return.
• They consist of remittances, gifts and grants. They could be official or private.

Solution: a)

The main difference between revenue receipts and capital receipts is that in the case of revenue receipts, government is under no future obligation to return the amount, i.e., they are non-redeemable. But in case of capital receipts which are borrowings, government is under obligation to return the amount along with Interest.

Capital receipts may be debt creating or non-debt creating.

Examples of debt creating receipts are—Net borrowing by government at home, loans received from foreign governments, borrowing from RBI. Examples of non-debt capital receipts are—Recovery of loans, proceeds from sale of public enterprises (i.e., disinvestment), etc. These do not give rise to debt.

Solution: c)

Rupee mostly appreciates against dollar due to higher flows into the market.

We need to avoid the appreciation of the rupee if we are to strengthen the domestic manufacturing industry. Any appreciation of the rupee facilitates more imports and less exports, adversely affecting domestic production.