INSIGHTS STATIC QUIZ 2020 - 21
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Question 1 of 5
1. Question
If the total size of the economy is growing year after year, it implies that
- GDP growth rate must be increasing steadily year after year.
- Gross Capital formation in the economy must be increasing year after year.
Which of the above statements is/are incorrect?
Correct
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.
Incorrect
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.
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Question 2 of 5
2. Question
Consider the following statements regarding Incremental Capital-Output Ratio (ICOR).
- The incremental capital output ratio (ICOR) denotes the relationship between the level of investment made in the economy and the consequent increase in the gross domestic product (GDP).
- The higher the ICOR, the higher the productivity of capital.
- In the last ten years, the ICOR has seen substantial decline in India.
Which of the above statements is/are correct?
Correct
Solution: c)
The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used.
In FY19 (2018-19), the implicit incremental capital-output ratio (ICOR) was 4.6. This is relatively high because of deficient capacity utilisation.
Historically, India’s average ICOR during the three-year period from FY17 to FY19 has averaged 4.23.
Incorrect
Solution: c)
The Incremental Capital-Output Ratio (ICOR) is the ratio of investment to growth which is equal to the reciprocal of the marginal product of capital. The higher the ICOR, the lower the productivity of capital or the marginal efficiency of capital. The ICOR can be thought of as a measure of the inefficiency with which capital is used.
In FY19 (2018-19), the implicit incremental capital-output ratio (ICOR) was 4.6. This is relatively high because of deficient capacity utilisation.
Historically, India’s average ICOR during the three-year period from FY17 to FY19 has averaged 4.23.
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Question 3 of 5
3. Question
Which of the following expenditure by the Government are considered as Transfer payments?
- Universal Basic Income.
- Subsidies paid to farmers
- Conditional cash transfers
Select the correct answer code:
Correct
Solution: b)
Expenditure like pensions, scholarships and UBI are direct transfers of money and do not create any output. They are called Transfer payments. They are one-way payment of money for which no good or service is received in exchange. Transfer payments may be conditional cash transfers or unconditional cash transfers.
Subsidies are not considered transfer payments because they are linked to an economic transaction.
Incorrect
Solution: b)
Expenditure like pensions, scholarships and UBI are direct transfers of money and do not create any output. They are called Transfer payments. They are one-way payment of money for which no good or service is received in exchange. Transfer payments may be conditional cash transfers or unconditional cash transfers.
Subsidies are not considered transfer payments because they are linked to an economic transaction.
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Question 4 of 5
4. Question
Which of the following is/are part of the Personal Disposable Income?
- Non-tax Payments such as fines
- Corporate Tax.
- Personal Tax Payments.
- Net Interest payments made by households
Select the correct answer code:
Correct
Solution: d)
None of them are part of Personal Disposable Income.
In economics, personal income (PI) refers to an individual’s total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period.
If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income.
Personal Disposable Income (PDI) ≡ PI – Personal tax payments – Non-tax payments.
Incorrect
Solution: d)
None of them are part of Personal Disposable Income.
In economics, personal income (PI) refers to an individual’s total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period.
If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income.
Personal Disposable Income (PDI) ≡ PI – Personal tax payments – Non-tax payments.
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Question 5 of 5
5. Question
Consider the following statements regarding GDP deflator.
- GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
- Unlike the CPI, the GDP deflator is not based on a fixed basket of goods and services.
- When GDP deflator is negative, it necessarily means that there is inflation in the economy.
Which of the above statements is/are correct?
Correct
Solution: c)
In economics, the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.
The GDP deflator is a more comprehensive inflation measure than the CPI index because it isn’t based on a fixed basket of goods.
When GDP deflator is negative, nominal GDP is less than real DP. It means that there is deflation in the economy.
Incorrect
Solution: c)
In economics, the GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.
Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year.
The GDP deflator is a more comprehensive inflation measure than the CPI index because it isn’t based on a fixed basket of goods.
When GDP deflator is negative, nominal GDP is less than real DP. It means that there is deflation in the economy.
