QUIZ – 2020: INSIGHTS STATIC , 17 June 2021 -Economy

Solution: a)

The Office of Economic Adviser, Department for Promotion of Industry and Internal Trade releases Index of Eight Core Industries (ICI). ICI measures combined and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.The Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP). 

Refinery Products constitutes the highest weightage followed by Electricity.

Solution: d)

Overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand.

It is generally characterised by a below-average rate of economic growth, where growth is occurring at an unsustainable rate.

Solution: c)

Tax revenues consist of the proceeds of taxes and other duties levied by the central government.

Tax revenues comprise of direct taxes – which fall directly on individuals (personal income tax) and firms (corporation tax), and indirect taxes like excise taxes (duties levied on goods produced within the country), customs duties (taxes imposed on goods imported into and exported out of India) and service tax.

Non-tax revenue of the central government mainly consists of interest receipts (on account of loans by the central government which constitutes the single largest item of non-tax revenue), dividends and profits on investments made by the government, fees and other receipts for services rendered by the government. Cash grants-in-aid from foreign countries and international organisations are also included.

Income generated by the Central Government through the spectrum auctions is part of non-tax revenue.

Solution: d)

Transfer payment is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government subsidies for certain businesses.

For the purpose of calculating gross domestic product (GDP), government spending does not include transfer payments, which are the reallocation of money from one party to another.

Solution: a)

The first difference is that the GDP deflator measures the prices of all goods and services produced, whereas the CPI measures the prices of only the goods and services bought by consumers. Thus, an increase in the price of goods bought by firms or the government will show up in the GDP deflator but not in the CPI.

The second difference is that the GDP deflator includes only those goods produced domestically. Imported goods are not part of GDP and do not show up in the GDP deflator. CPI includes prices of goods consumed by the representative consumer; hence it includes prices of imported goods.

The third difference is that CPI assigns fixed weights to the prices of different goods, whereas the GDP deflator assigns changing weights. The CPI is computed using a fixed basket of goods, whereas the GDP deflator allows the basket of goods to change over time as the composition of GDP changes.