QUIZ – 2020: INSIGHTS STATIC , 23 March 2021 – Economy

Solution: c)

RBI primarily factors in retail inflation while making its bi-monthly monetary policy. 

A broad-based domestic and global economic recovery should improve aggregate demand, posing an upside risk to inflation. On the other hand, favorable base effect, appreciating rupee and any risk of second or third wave of covid led slowdown, will be a tailwind for CPI inflation.

Solution: b)

The GDP deflator, also called implicit price deflator, is a measure of inflation. It is the ratio of the value of goods and services an economy produces in a particular year at current prices to that of prices that prevailed during the base year.

This ratio helps show the extent to which the increase in gross domestic product has happened on account of higher prices rather than increase in output.

Since the deflator covers the entire range of goods and services produced in the economy — as against the limited commodity baskets for the wholesale or consumer price indices — it is seen as a more comprehensive measure of inflation.

Changes in consumption patterns or introduction of goods and services are automatically reflected in the GDP deflator. This allows the GDP deflator to absorb changes to an economy’s consumption or investment patterns. Often, the trends of the GDP deflator will be similar to that of the CPI.

Solution: a)

Inflation is basically too much money chasing too few goods, or excess demand chasing limited supply. 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.

Excess supply is likely to bring prices down.

Solution: c)

Disguised unemployment exists where part of the labor force is either left without work or is working in a redundant manner where worker productivity is essentially zero. It is unemployment that does not affect aggregate output.

Disguised unemployment would usually occur when there is high and redundant employment. When there is high unemployment, it means that firms are more likely to be using labour to their full potential, or that there is a lack of jobs or a lack of fit between the skills of the population and the jobs available. None of these automatically or necessarily signify disguised unemployment.

For e.g. there are more people in Indian agriculture than is necessary. So, even if you move a few people out, production will not be affected. In other words, workers in agricultural sector are under-employed. But, as S2 says, if there are very few people working in primary sectors like agriculture, then the likelihood of having high disguised unemployment is lesser.

Each one is doing some work but no one is fully employed.

This kind of underemployment is hidden in contrast to someone who does not have a job and is clearly visible as unemployed. Hence, it is also called disguised unemployment.

Solution: a)

Disguised Unemployment is a kind of unemployment in which there are people who are visibly employed but are actually unemployed. This situation is also known as hidden Unemployment. In such a situation more people are engaged in a work than required.