QUIZ – 2020: INSIGHTS STATIC , 13 May 2021 – Economy

Solution: c)

• The real effective exchange rate (REER) compares a nation’s currency value against the weighted average of the currencies of its major trading partners.
• It is an indicator of the international competitiveness of a nation in comparison with its trade partners.
• The formula is weighted to take into account the relative importance of each trading partner to the home country.
• An increasing REER indicates that a country is losing its competitive edge.
• A nation’s nominal effective exchange rate (NEER), adjusted for inflation in the home country, equals its real effective exchange rate (REER).

Solution: d)

The Human Development Index (HDI) is a statistic developed and compiled by the United Nations to measure and various countries’ levels of social and economic development. It is composed of: mean years of schooling and expected years of schooling, life expectancy at birth, and gross national income per capita. This index is a tool used to follow changes in development levels over time and to compare the development levels of different countries.

Solution: a)

A part of the capital gets consumed during the year due to wear and tear. This wear and tear is called depreciation. Naturally, depreciation does not become part of anybody’s income. If we deduct depreciation from GNP the measure of aggregate income that we obtain is called Net National Product (NNP).

Net National Product at factor cost or National Income. Thus, NNP at factor cost ≡ National Income (NI ) ≡ NNP at market prices – (Indirect taxes – Subsidies) ≡ NNP at market prices – Net indirect taxes (Net indirect taxes ≡ Indirect taxes – Subsidies)

Solution: d)

Statement 1 – In the light of high NPAs, Banks tend to lower the interest rates on deposits on one hand and likely to levy higher interest rates on advances.

Statement 2 – The increased NPAs put pressure on recycling of funds and reduces the ability of banks for lending more and thus results in lesser interest income.

Statement 3 – As per Basel norms, banks are required to maintain adequate capital on risk-weighted assets on an ongoing basis. Every increase in NPA level adds to risk weighted assets which warrant the banks to shore up their capital base further.

Solution: c)

Fixed capital is assets used in the productive process. Examples of Fixed Capital Formation include – Building or expanding existing factory, Road and bridge construction, Purchase of transport equipment, Office equipment, such as computers, printers, Machinery used in the productive process, Energy infrastructure etc.

Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy’s capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels.

Fixed capital formation (growth of productive infrastructure etc.) is directly related with economic growth rate.

Only short-term growth may be achieved if resources from Fixed Capital are diverted towards consumption. In the long-term quality and quantity of infrastructure is a major determinant of economic growth.

Dwellings are not directly utilised by businesses and the government to produce output. Since dwellings do not add to the productive capacity of the economy, even if its growth rate reduces, the economy can still grow.

(A dwelling is a home — where someone lives)