QUIZ – 2020: INSIGHTS STATIC , 02 April 2021 – Economy

Solution: b)

NDP is essentially the GDP discounted for the total value of the ‘wear and tear’ (depreciation) that happened in the assets while the goods and services were being produced. It means GDP minus depreciation is NDP.

Depreciation is caused due to wear and tear of capital or due to poor technological growth that fails to cut down levels of depreciation.

Lower the depreciation, lesser will be the difference between GDP and NDP. This is achieved best in the case of option (b).

Solution: a)

An intermediate good is a product utilized to produce a final good or finished product. These goods are sold between industries for resale or for the production of other goods.

Since GDP (gross domestic product) is a measurement of the market value of final goods, using intermediate goods in the calculation would result in goods being counted twice, and thus the figure would be inaccurate.

Depreciation is deducted separately. Moreover, it forms part of the calculation of NDP, not GDP.

Solution: b)

Trying to get the government to change the rules so as to make one’s business more profitable rather than spending time and money not on the production of real goods and services is called as rent seeking.

It is like cutting a bigger slice of the cake rather than making the cake bigger trying to make more money without producing more for customers.

Rent-seeking and crony capitalism are closely related. These erode an economy’s competitiveness, leads to concentration of wealth and inequity.

Solution: b)

Cash Management Bills (CMBs) are short term bills issued by central government to meet its immediate cash needs.

The bills are issued by the RBI on behalf of the government. Hence the CMBs are short-term money market instruments that help the government to meet its temporary cash flow mismatches.

CMBs are eligible as SLR securities. Investment in CMBs is also recognized as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.

Solution: a)

Capital market deals in financial instruments and commodities that are long-term securities. They have a maturity of at least more than one year.

The most important type of capital market is the primary market. It is what we call the new issue market. It exclusively deals with the issue of new securities, i.e. securities that are issued to investors for the very first time.

After the primary market is the secondary capital market. This is more commonly known as the stock market or the stock exchange. Here the securities (shares, debentures, bonds, bills etc) are bought and sold by the investors.

The main point of difference between the primary and the secondary market is that in the primary market only new securities were issued, whereas in the secondary market the trading is for already existing securities. There is no fresh issue in the secondary market.