QUIZ – 2020: INSIGHTS STATIC , 10 June 2021 – Economy

Solution: b)

A boom is a period of rapid economic expansion resulting in higher GDP, lower unemployment, a higher inflation rate and rising asset prices.

A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment.

A depression is a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts three or more years or which leads to a decline in real gross domestic product (GDP) of at least 10%.

Economic recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity. Normally, during an economic recovery, gross domestic product (GDP) grows, incomes rise, and unemployment falls and as the economy rebounds.

Solution: c)

Demand deposits are liabilities to a bank

Solution: a)

Revenue Expenditure is expenditure incurred for purposes other than the creation of physical or financial assets of the central government. It relates to those expenses incurred for the normal functioning of the Government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though some of the grants may be meant for creation of assets).

Repayment of loan is a capital expenditure as it causes reduction in liabilities of the government.

Solution: d)

To understand why public goods need to be provided by the Government, we must understand the difference between private goods such as clothes, cars, food items etc. and public goods. There are two major differences.

One, the benefits of public goods are available to all and are not only restricted to one particular consumer. That is, public goods are Non- ‘rivalrous’.

In economics, a good is said to be rivalrous or a rival if its consumption by one consumer prevents simultaneous consumption by other consumers, or if consumption by one party reduces the ability of another party to consume it.

Two, in case of private goods anyone who does not pay for the goods can be excluded from enjoying its benefits. That is why public goods are called non-excludable.

There is another type of goods called common resources (goods). They are defined as products or resources that are non-excludable but rival. That means they can be used by virtually anyone. However, if one individual consumes common resources, their availability to other individuals is reduced. The combination of those two characteristics often results in an overuse of common resources (The Tragedy of commons). Examples of common resources include freshwater, fish, timber, etc

The tragedy of the commons is a story that illustrates why common resources or goods might get overused from the perspective of society. The narrative is based on the assumption that every individual tries to get the highest possible benefit from a given resource. In the case of common goods, this can lead to a situation where the resources are being exploited to the point where society as a whole suffers.

Solution: c)

If we deduct depreciation from GNP the measure of aggregate income that we obtain is called Net National Product (NNP). Thus NNP ≡ GNP – Depreciation

Net National Product at factor cost is also called as national income.

NNP at factor cost ≡ National Income (NI ) ≡ NNP at market prices – (Indirect taxes – Subsidies) ≡ gross national product at market prices – depreciation – Indirect taxes + Subsidies